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James_Miller comments on Stupid Questions September 2015 - Less Wrong Discussion
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Comments (174)
That's an interesting offhand comment. Does that imply that EMH doesn't apply to financial assets in corrupt economies, specifically to external (foreign) investors who can come and leave as they want?
Also, while China's official economic numbers are highly suspect (see e.g. this), it looks very likely that it is one of the three world's biggest economies (along with USA and EU). Can a passive investor afford to ignore it?
Well, it doesn't mitigate the risk, it just partially avoids it. You are right in that investing in foreign countries brings with it FX risk and while it's easy to hedge a lot of people are not going to bother.
Another interesting thing here is that the currency markets do not fall under EMH, both empirically (they are clearly not a random walk) and theoretically (the preconditions for EMH do not hold).
Yes, although with China you can't necessarily leave when you want as the government might restrict sales.
No, but by investing in U.S. firms that do business in China you are not ignoring it.
US firms? Your main China exposure is going to come from your Aussie mining exposure.
We are talking about index funds. I don't think a US equity index will give you any meaningful exposure to specifically China (as opposed to, say, some global factor like risk appetite).