Paper Dragons by Walden Bello;

Author:Walden Bello;
Language: eng
Format: epub
Publisher: Book Network Int'l Limited trading as NBN International (NBNi)
Published: 2019-07-14T16:00:00+00:00

Suddenly, you receive disturbing news that Thailand is in serious trouble, and you must decide immediately what to do with your Malaysian investments. It is in this moment that the escape psychology and syndrome begins. First, you immediately wonder if the disturbing new information leaking out about Thailand applies to Malaysia as well. You think it does not, but you are not sure. Second, you must instantly begin to think strategically about how other EMFMs [emerging market financial managers] and independent investors are going to react, and of course they are thinking simultaneously about how you are going to react. And third, you are fully aware, as are all the other managers, that the first ones who sell as a market turns negative will be hurt the least, and the ones in the middle and the end will lose most value in their portfolio – and are likely to be fired from their position as an EMFM as well. In a situation of low systematic transparency, the sensible reaction will be to sell and escape. Notice that even if you use good connections in the Malaysian government and business community to receive highly reliable information that the country is healthy and is not suffering from the same problems as Thailand, you will still sell and escape. Why? Because you cannot ignore the likely behaviour of all the other investors. And since they do not have access to the reliable information you have, there is a high probability that their uncertainty will lead them to choose the escape. If you hesitate while they rush to sell their shares, the market will drop rapidly, and the value of your portfolio will start to evaporate before your eyes.45

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