transparent; they are

unregulated with a lot of fraud

and predatory behaviour.
Smart investors are
beginning to recognise a pattern.
The most successful companies
today are not the incumbent
behemoths with 100-year-old
histories. The most successful
ones like Twitter, Facebook,
Amazon, Alibaba and Tencent
are less than 10 to 20 years, some
even less. These all began as
small enterprises with one big
idea and driven founders.
Finding the next Alibaba
among the millions of SMEs out
there can be rewarding for the
entrepreneurs, investors and the
economy.
Alibaba has demonstrated to
the millions of Chinese SMEs
that if they have the right idea
and vision, they can make it on a
global scale. But to expect these
companies to become floated on
the main stock exchanges is
asking a talented sportsman to
make the Olympics in one go.
You need very good coaches and
lots of hard work and an eco-
system to prepare these SMEs
on the road to success.
How smart investors and
governments can nurture the
next wave of SMEs in innovation
and job creation is the big
question.
Andrew Sheng is working on the
future of finance and development
in Asia. www.andrewsheng.net
T
he spectacular departure
of Pimco bond whiz Bill
Gross last month to join
Janus Capital raised the question
of whether it is the end of the
bull run in bond markets that
Gross successfully predicted in
the 1980s.
Debt has grown faster than
stocks because lower interest
rates pumped up financial asset
values, especially if such
investments were leveraged.
With interest rates in
advanced economies at
historical lows, there are bubbles
in both financial assets and real
assets. With the US Federal
Reserve threatening to withdraw
quantitative easing as the US
begins to show signs of recovery,
bond markets and equity
markets, especially in the
emerging markets, are
beginning to drop.
Even commodity prices are
falling in the wake of a slowing
Chinese economy. In fact, real
estate markets are peaking and
beginning to drop, as regulators
begin to tighten credit for
speculation.
Add to this brew the growing
random shocks of Ukraine,
Islamic State and Ebola, and it is
not surprising that active fund
managers are finding it tough to
make money. The large pension
fund Calpers recently
announced it was withdrawing
its money from hedge funds,
citing high management fees
and low performance.
Conventional finance theory
argues that, in a world of perfect
information and efficient
markets, most investors cant
beat the market. Professor
Burton Malkiel, in his 1973 book
ARandom Walk Down Wall
Street, suggested that a
blindfolded chimpanzee
throwing darts at The Wall Street
Journal list of stocks could beat
active portfolio managers.
This sparked off the
exchange-traded fund (ETF)
industry, which allows investors
to invest in a portfolio
benchmarked against the stock
market index. You do well if the
whole market does well and you
dont need to pick individual
stocks. A review of fund
performance showed that a
simple 60 per cent equity and 40
per cent bond portfolio would
have out-performed most of the
active fund managers in the past
20 years.
We have now seen a
fundamental shift in the mindset
of investors and professional
asset managers. They have come
to realise that there are actually
two markets out there.
The first is the publicly traded
market, which is becoming
more transparent, with lower
transaction costs, trading at
faster speed but becoming more
and more regulated. Making
money is more difficult because
you need to invest in highly
complex computer algorithms
to manage asset allocation, trade
and also take care of the risks.
At the same time, as yields go
lower, you can only make
money by being leveraged.
Worse, the regulators are looking
closely at market manipulation
and insider trading, so the risks
of active asset management are
getting higher.
With passive management
(ETFs), you make money on
selling the funds, and you are
not at risk from the regulators
unless you are manipulating the
index components.
In other words, if the publicly
traded market is truly efficient,
you cant make money unless
you follow the random walk. But
in a bear market, a passive policy
will lose money for you, because
everyone will lose money.
Retail investors are deserting
publicly traded markets, other
than the speculative tech stocks,
because they feel they have no
chance against fast traders and
large funds managers.
Regulators keep talking about a
level playing field, but the
market is inherently unequal.
There is a second private
market out there, where there is
lots of money to be made, but
the risks are higher and they are
less transparent, less liquid and
under-regulated. These are the
unlisted or over-the-counter
markets, sometimes called dark
pools. The institutional players
are mostly in these markets, but
the real money is going to be
made in the unlisted markets for
small and medium-sized
enterprises.
These markets are less
Outplayed by the fast traders, smart
investors try to pick the next Alibaba
Andrew Sheng says many eschew the publicly traded market to focus on the riskier SME market
There is a second
private market,
where there is
lots of money to
be made, but the
risks are higher
Saturday, October 11, 2014 A15
> CONTACT US
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on this page? Write to us at
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If you have an idea for an opinion
article, email it to oped@scmp.com
U
nbridled democracy isnt
going to happen and
wouldnt work anyway.
What could work is some-
thing much closer to full
democracy than we were ever likely to see
before the protesters asserted their case.
China is not ready for democracy, the
people of Hong Kong are. But be careful
what you wish for: Beijings fears are not
unfounded. Should a public protest ever
lead to Western-style democracy in Hong
Kong, it would be a green light for rebellion
across China. (Paradoxically, if we could
rely on the Great Firewall to keep all news
from Hong Kong out of China, we would
have more chance of greater freedom
here.)
Over on the mainland, it would be far
from peaceful, and, in the unlikely (and
bloody) event that pro-democracy forces
overthrew the Peoples Republic, violent
chaos would surely ensue. Separatist
forces in Xinjiang , Tibet and
Inner Mongolia would lead the
charge to independence, which, if only it
were to be an amicable and peaceful fare-
well, would be no bad thing.
However, the more likely reality is that
as yet unquantified, pent-up Chinese
nationalism would be unleashed; the
crashing together of these forces could
only result in violent conflict. China would
win out and its newly installed nationalis-
tic government would be feeling more
confident and belligerent than its prede-
cessors. Think of the consequences for the
disputes in the East and South China seas,
Taiwan included.
Whether you like to believe it or not, the
civilian leadership in Beijing not only
holds together a ragbag collection of peo-
ples within China, it restrains the fire-
power of a hawkish military egged on by
clamorous netizens.
Lets be clear, in terms of political free-
dom, the Peoples Republic is a model only
for such morally bankrupt, power-craving
cliques as we see in power in North Korea
or Russia. However, a political revolution
would undermine much of the gains made
by the hundreds of millions in mainland
China, for whom communist rule has
brought great socio-economic benefits in
recent decades. Whereas, if you think of
Hong Kongs rampant inequality, inade-
quate housing and overflowing class sizes,
its clear democracy could only help social
progress here. A democratic revolution
that would benefit Hong Kong, but not the
nation of which Hong Kong is a part,
presents a dilemma which goes beyond
worthy ideals.
Wandering among the students in
Admiralty, one cannot fail to feel uplifted
by the outpouring of peace, love and a
desire for freedom. Perhaps most inspiring
are the multi-coloured Post-it notes of
hope stuck on the John Lennon democra-
cy wall. While admiring the wall, my five-
year-old son asked what the protesters
want. He already had a sense that govern-
ment means chiefs, so I explained the
concept of voting to choose chiefs whom
you want. When asked what he would like
to write on the wall, he replied We want a
better government, and then he added
x x x x, James.
Those of us who are no longer idealistic
teenagers may feel the students and
Hong Kong will be lucky to get anything
substantive out of this. But one area where
progress, in the long run, shouldnt be so
difficult is that of functional constituen-
cies. To elect one Legislative Council rep-
resentative takes tens of thousands of
teachers, but only a couple of hundred
bankers. Scrapping functional constituen-
cies entirely would be ideal, but democra-
tising them to one-member, one-vote
would be a compromise worth attaining.
No doubt youre thinking what Im
thinking about the convenient timing of
the release of information over Leung
Chun-yings HK$50 million deal with an
Australian company, which may yet bring
him down that Beijing may be behind it.
In any event, the voter base of the Elec-
tion Committee which nominates candi-
dates for chief executive must be widened.
Furthermore, if China would allow the
free nomination of candidates, it could
retain the power to dismiss a chief execu-
tive who proved unable to work effectively
with Beijing. That power alone should be
sufficient, but no doubt Beijing would feel
more secure if it could also veto at least the
most radical of candidates.
Accepting this would be a more realis-
tic aim, but it would require carefully de-
fined limits preferably a clause stating
that such veto power would dissolve in a
certain number of years. In any event, in
vetoing candidates after they have
declared their wish to stand, the author-
ities would have to wield such power cau-
tiously, to avoid a repeat of the kind of
backlash we have seen over the past days.
But such a veto is not strictly necessary:
the bulk of the electorate would under-
stand that, for example, Long Hair, much
as we may love him, wouldnt be the best
choice for leading Hong Kong, so they
wouldnt vote for him over less fractious
alternatives.
Chief among the realities that the pro-
democracy protesters must acknowledge
is that any candidate who speaks or acts in
an overtly anti-Beijing manner would not
be able to lead Hong Kong effectively.
Clearly its in Hong Kongs interests to
have a leader who can get along with the
central government.
Democracy-max for Hong Kong can-
not work, but neither can a Big Brother
state. So during any negotiations between
the government and the protesters, may
both sides give us what they can. If nothing
else, Hong Kong must have a better
government, x x x x.
Paul Letters is a political commentator
and writer. See paulletters.com
A democratic
revolution that would
benefit Hong Kong
but not the nation
presents a dilemma
Paul Letters says while Hongkongers are unlikely
to realise their wish for full democracy, they
should be able to persuade Beijing to allow
changes that would lead to a better government
A better tomorrow
T
he failure of protest leaders and the
government to begin talks means continuous
confrontation. A police crackdown may well be
inevitable. For the safety of all citizens, students and
protest leaders should call off the Occupy movement
and start a constructive dialogue with the
government as soon as possible.
The act of surrounding the government
headquarters remains a challenge to public order.
Jams and transport diversions, as well as business
losses have all created social disorder. Although the
movement has formed self-discipline corps to
maintain social order, the clashes in Mong Kok have
shown that self-governance amid illegal assemblies
without the polices prior permission is
unsustainable.
Its time for the Hong Kong Federation of Students
to be more realistic in its demands so as to de-
escalate the tension. It must understand the central
governments negotiating style, namely, that Beijing
sets the political and legal parameters through the
National Peoples Congress Standing Committee,
and the people of Hong Kong have to work on a
political model within such boundaries.
If students are to discuss constitutional reform
constructively, they should perhaps abandon the idea
of civic nomination but opt instead for terms like civic
recommendation, meaning that a certain number of
citizens may propose chief executive candidates,
whose names would be put to nominating
committee members for consideration. Similarly,
they should understand the technicalities of
democratising the composition of the committee,
and how to maximise the chances of pro-democracy,
moderate candidates being put forward by the
committee.
Protesters should perhaps understand that the
decision by the NPC Standing Committee did not
represent the end of democracy in Hong Kong.
Instead, it represented a landmark decision to allow
Hong Kong to have direct election of the chief
executive through universal suffrage for the first time.
Positive engagement with China is the most
pragmatic way forward; protesters should not resort
to emotional arguments and populist sentiment.
Many students in the street assemblies reiterate the
importance of keeping the universal values of
democracy and freedom. But they are less clear about
how exactly to craft a democratic model for Hong
Kong.
Hence, students and their leaders should begin
dialogue with officials and call off their assemblies as
soon as possible. Any postponement will just
continue to undermine Hong Kongs internal
solidarity and external image.
Finally, public opinion changes over time, and it is
now beginning to tilt against the protesters. The
polices use of pepper spray and tear gas to disperse
crowds on September 28 turned public opinion in
favour of the protesters. However, as the movement
drags on and as the economy is affected, public
opinion is now shifting. This ill feeling will increase if
Hong Kongs economy suffers further.
Negotiations based on realistic demands are the
only way forward. Who knows where the alternative,
adecisive crackdown by the police, may lead?
Sonny Lo is professor and head of the department of
social sciences at the Hong Kong Institute of Education
The open road
Sonny Lo says students must call off
their demonstrations and begin
realistic negotiations with the
government or risk a crackdown
T
he anti-democrats are
already gloating and the
fake friends of democracy,
who believe that second best is
always good enough for Hong
Kong, have been comforting
themselves with the thought that
the umbrella protests have
achieved nothing.
In so doing, they join the
parade of ignoramuses who
proclaimed that official racial
discrimination could never be
defeated in the American
southern states, that apartheid
would live forever in South
Africa and that Chinese people
could never achieve democracy
in Taiwan.
None of this was achieved
overnight and none of this was
accomplished by simply begging
those with power to behave
better. Like all struggles for social
and political progress, the path
to victory proved to be long and
turbulent.
In Hong Kong, the protests
have already yielded some
remarkable results. First and
most important, a new
generation has shown its ability
to take on the work of a previous
generation who campaigned for
democracy; crucially, they have
done so by affirming their pride
as Hongkongers.
Secondly, despite
provocation, which included the
mobilisation of criminal gangs,
the demonstrations have
achieved world-beating levels of
civility and non-violence. Where
else in the world would a person
who had driven a car straight at
demonstrators emerge from the
vehicle without being attacked?
This leads us to the third
achievement, which concerns
Hong Kongs reputation.
Contrary to official
protestations, the
demonstrations have earned
global respect for the people of
Hong Kong. You need only see
the international coverage given
to these events to appreciate
how Hong Kong is being
portrayed as a place where the
spirit of democracy is unbowed
and the determination to
achieve it has been pursued
peacefully and imaginatively.
Fourthly, while the anti-
democrats peddle wild stories of
foreign powers manipulating
and organising these protests,
the reality has been a
remarkable display of genuine
grass-roots power. The result is
that although no one is really in
charge, at the street level there
has been a remarkable level of
organisation, with systems
established to supply food,
medical care and all manner of
other services that emerged
because citizens took matters
into their own hands and acted
without anyone telling them
what to do.
Fifthly, it has been reassuring
to see the determination of the
judiciary to uphold the rule of
law and ensure that the rights of
citizens are preserved.
Sixthly, another positive
conclusion can be drawn about
the durability of Hong Kongs
institutions because the local
media has done a great job
covering these events. Although
much of the media is hostile to
the protests, the open nature of
Hong Kong ensures that both
sides of the argument are aired
and this has been combined
with solid news coverage.
Adding to this has been the
vitality of social media.
Finally, there has been a
considerable upsurge in political
debate throughout Hong Kong,
not least over constitutional
reform. This places the pathetic
official consultation exercises
firmly in the shadows.
No one is under any illusion
that the Herculean task of
achieving democracy in Hong
Kong can be done in weeks,
months or even years. What we
are looking at is a process that
has a long away to go, but it will
never go anywhere if the people
are cowed and remain sullenly
silent.
So, those who persist in
saying that these protests will
achieve nothing remain exactly
where they started on the
wrong side of history. Indeed, if
Hong Kongs recent history is
any guide, we will discover that
once the protests succeed, the
anti-democrats, like the former
turncoat colonial stooges, will be
quick to claim that they were
always working for democracy.
Stephen Vines is a Hong Kong-based
journalist and entrepreneur
Fight for democracy wont be
in vain, but it will take time
Stephen Vines notes the remarkable results so far of the umbrella protests
A new
generation has
shown its ability
to take on the
work of a
previous one