A tough sell: insurance against a China financial crisis

Sun Apr 20, 2014 5:27pm EDT
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By Vidya Ranganathan

SINGAPORE (Reuters) - Selling insurance against a financial crisis should not be difficult, five years after the last one nearly wrecked the global economy.

But when it comes to China, the world's second-largest economy, the probability of a full-blown crisis is apparently so remote that hardly anyone will buy an insurance policy against it, no matter how cheap.

Financial wizards have been trying to sell peace of mind to investors in China for years, but fewer and fewer of those investors are interested, despite some worrying headlines.

In the past few months alone, China has seen its first domestic bond default, a small bank run, its weakest export performance since the global financial crisis, a marked slowdown in its property market and a rise in labor unrest.

Steve Diggle, a Singapore-based hedge fund manager who crafts strategies to protect investors against financial catastrophes, says investors have faith that the Chinese government, armed with almost $4 trillion in foreign exchange reserves, will simply not allow things to get out of hand.

He had to close down a fund that used to bet on doomsday outcomes in Asia last year.

"There's a sense you are playing poker against a guy who makes his own chips," Diggle said.

Before the 2008-09 global financial crisis, he had run a successful fund, Artradis, which thrived on volatility in financial markets. Now, he says, hedging against a catastrophe seems to be passe - and not just for China.   Continued...

People walk along an elevated walkway at the Pudong financial district in Shanghai November 20, 2013. REUTERS/Carlos Barria