The Chinese government, which is a player in every aspect of the stock market, including control over stock brokers, is trying to talk down the market for fear that an all out crash could take the country into recession.

Chancellor writes, “The aftermaths of great financial bubbles also follow a common course — investor disappointment often give way to recriminations and a political backlash”. It is something that our government, already fighting the inflation demon, would want to keep in mind.

While opposed to direct equity investment, many of us believe that a index tracking fund is probably safer, has less scope for mal-investment while providing the benefit of index appreciation in a fast growing economy.

However, a non-profit governance advocacy group in Hong Kong — Webb-site.com — has recently issued a three-part alert to investors about the high cost of index tracking funds. It warns, “that a Mandatory Provident Fund (MPF) index-tracking fund cost employees 2 per cent per year on their accumulated contributions, equivalent to a 55 per cent value-reduction over 40 years, or 33 per cent over 20 years, relative to the underlying investment performance”.

The site argues that these costs are higher than what an investor would have earned by investing directly in the market or in an index fund. Webb says that every $1,000 investment in the MPF has cost $138 in five years — “if the MPF continues over a lifetime of contributions, the performance of all funds will be crushed by the expenses”.

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