A government probe into leaks of economic data has caused a furore among investors. The leak of the statistics of the world?s second largest economy is benefitted by the insiders, while it leaves the traders confused.
Monthly information on China’s industrial output, consumer prices, and real-estate investments are eagerly awaited in trading rooms of Shanghai, Hong Kong, Tokyo, and Singapore.
The Chinese statistics office said that it is looking into the leaks and has detained an investigating official for the offense. The Beijing People’s Procuratorate confirmed that a secretary at the National Bureau of Statistics is one of five officials under investigation over data leaks.
Chinese government is taking the necessary precautionary measures to safeguard against further leaks. Steps have been taken to limit the number of officials who have access to data.
In the U.S., the authorities confine the journalists to a room where no communication to outside world is possible. They are allowed to move only after the temporary embargo is lifted.
In international markets, China is now running close to the U.S. as the world?s most important economy. With the global economy connected with each, any major news on the Chinese economy can have an impact on the U.S. and European markets.
Both domestic and international traders are frustrated about the leaks as it gives an advantage to the insiders. They make diligent moves with the market-moving information, leaving others to chase rumours.
How insiders benefit
The insiders get an opportunity to anticipate the market reaction and take the most profitable position. For others, market rumors only create confusion. One bond trader at a foreign bank in Shanghai said the markets have to take a view on the accuracy of the rumor. “If you think it’s 50% reliable, you make 50% of the trades you would make if you actually saw the official data at that level” he said.
These data leaks make a major influence on the market reaction. The markets respond by pricing ahead of the release of the data. For instance, in 2010, the markets fell 3.1% on Jan. 20, the day before the release of key data showing a surprise increase in inflation. While, on Jan. 21?the day of the data release, the markets closed flat.
Trading ahead of economic news is common in other markets, including in the U.S. However, it is based on market predictions rather than leaks of official data.
News agencies and data leak
An article in the official People’s Daily on Tuesday refers to financial news service Thomson Reuters as “Octopus Paul” for its ability to accurately predict the level of the consumer-price index. Thomson Reuters, which like many news organizations, publishes previews ahead of data releases citing estimates by economists as well as information from government sources.
Chinese news agencies are a major source of leaks for financial data. They compete with each other to become the first to publish news on the economic data ahead of their official release. They frequently break the embargo and send headlines with key data points a few minutes ahead of time.
A senior journalist at a leading Chinese business paper said “senior journalists, who are also Communist Party members, have been briefed on the data from high-level officials at the NBS ahead of official publication.” Though, this information is often reported as market rumors.
Some private data agencies inside and outside China also appear to have early access to official data and offer advance views to paying customers. The data were apparently leaked to the companies for making personal gains.
In past months, Chinese news portal Sina.com and Phoenix, with close links to the government, have also made such announcements before the official release date.
Data leaks compound problems caused by doubts about the reliability of China’s economic statistics. Data on the change in the national average housing price were widely criticized as the percentage was at odds with the perceptions of rapid increases in prices.
Unemployment data were also widely regarded as misleading. In the last decade, despite a slow growth rate, China’s official urban unemployment rate has never fallen lower than 3.6% or risen higher than 4.3%.
The consumer-price index has also come in for criticism, with a widespread perception that it fails to capture the true extent of increases in consumer prices.
Source: Wall Street Journal