ANALYSIS: Sinking Chinese Stocks a Costly Diversification Choice for Canada’s Pension Plans

Chinese stocks are hitting multi-year lows amid the government’s ongoing rescue efforts. Justification made by Canadian public-sector pension plans last May that China offers diversification in their portfolios is proving costly, particularly for the largest among them—the Canada Pension Plan (CPP)—with its outsized allocation to China. Investing in China takes place amid geopolitical tensions, concerns over massive debt loads at all levels of government, lack of transparency in financial reporting, and a bankrupt real estate sector.  Many global investors also believe Chinese leader Xi Jinping is mismanaging the country’s economy and financial markets. Investors have been selling Chinese stocks in such large quantities that the Chinese Communist Party (CCP) has taken steps to stem the plunge, by having state-owned firms buy stocks to prop up the market and by restricting short-selling—where an investor borrows a stock and sells it, hoping to make a profit by buying it back at a lower price....