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How to Remove Informational Barriers From Non-Transparent or Emerging Markets

Zoomlion is the world’s sixth-largest and China’s leading construction machinery enterprise. Considering the boom in the local construction sector and the increased demand and export of Chinese machinery over the past decades, the growing interest in Zoomlion’s shares is no coincidence. The stock (1157:HKG) is a popular constituent of many emerging markets investors’ portfolios, averaging a trading volume of anywhere between 5 and 45m per day.

However, a few years back, the company’s shares experienced an 11-month period which saw their price tumble 26.9%. The reason was a series of news stories claiming that the company was linked with losses of state assets, abnormal sales practices, and false financial reporting. The news was published in Chinese in the local Guangzhou newspaper, New Express.

A further investigation revealed that the reporter behind the stories had been accepting bribes from one of Zoomlion’s direct competitors. However, the damage had already been done. The fabricated facts had led to significant losses for the construction giant and its investors.

Unfortunately, this isn’t an isolated case as similar situations happen all the time. The only difference is the magnitude of their effect on investors’ portfolios. Due to the scale of Zoomlion, although much later, the news spread, and the problem gained traction. However, when similar issues arise with smaller-scale companies that don’t have similar publicity, the effect on investors’ portfolios might be much more devastating.

Unfortunately, this isn’t an isolated case as similar situations happen all the time. The only difference is the magnitude of their effect on investors’ portfolios. Due to the scale of Zoomlion, although much later, the news spread, and the problem gained traction. However, when similar issues arise with smaller-scale companies that don’t have similar publicity, the effect on investors’ portfolios might be much more devastating.

This story is yet another proof of how important it is for emerging market investors to keep a close eye on the landscape around their investments to better protect their portfolios.

The question that remains, however, is how global investors are supposed to navigate situations where critical news is published in a local newspaper in a foreign language?

Thanks to technology, this is no more an issue. Today, asset managers can not only navigate non-transparent and emerging markets safely and ensure complete management of risks but also identify high-profit potential opportunities and arising trends.    

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