BT: Is investing in China stocks riskier? (03 Nov 2006)
Business Times - 03 Nov 2006
Is investing in China stocks riskier?
By R SIVANITHY
IT WOULD be tempting to conclude from the murky events surrounding the controversial ouster of Bio-Treat Technology's chairman last week that investing in China companies comes fraught with all sorts of unknowable risks and that investors have to be extra vigilant when dealing with such companies.
Coming just a week after China Food Industries (CFI) was found to have faked its accounts via various dubious schemes, and with the bitter taste of China Aviation Oil's spectacular collapse still lingering in the mouths of investors, the Bio-Treat incident not only cast the China segment in a poor light, it also provides ammunition for critics who think the local market should be less accommodating towards the listing of foreign companies, especially those from China.
'China was, and always will be, an opaque black box, and Bio-Treat and CFI should remind us of that,' remarked one observer, who also pointed to various profit shocks reported by China companies over the past six months by way of additional illustration.
The outcome of these unfortunate events has been significant underperformance of China stocks over the past few weeks as investors shun the segment in favour of local stocks. This is a shame. To be honest, investing in China companies should be seen as being no more or less risky than investing in any other stocks, regardless of country of origin.
For example, if boardroom trauma is viewed as enhancing investment risk because of increased managerial uncertainty, then recent upheavals at integra2000 and Vantage Corp (and to a lesser extent, the surprising boardroom developments at Robinson's) which have occurred over the past couple of months suggest that top-level displacements are just as likely to occur in non-China companies as in Chinese ones. If fraudulent financial reporting is the issue, then the pro-China camp can quite justifiably point to the calamitous practices of Citiraya Industries and Accord Customer Care Solutions, two of the more high-profile corporate collapses in recent times. Both were Singapore-based and Singapore-owned.
Questionable practices at the initial public offer stage? Again, the risks are just as high for local companies as China ones - recall the infamous circumstances surrounding Mid-Continent and Links Islands, two companies whose shares were cornered and manipulated soon after listing.
Some might suggest that China companies are more likely to cause profit shocks than their local counterparts. Again, this can be disputed. One might argue, for example, that the blow from Creative Technology's larger-than-expected loss announced this week could have been cushioned by a profit warning or guidance of sorts.
The important point to note is that in a relatively mature caveat emptor market and in a world where investment borders are no longer as clearly delineated as before, the onus is on the entire gamut of intermediaries like auditors, financial sponsors, lawyers, investment banks, underwriters and brokers to minimise the risk of shocks to the investing public. Companies, too, are responsible for being transparent and forthcoming with their disclosures.
Quite correctly, this is the model towards which the regulatory authorities are moving. The Singapore Exchange, for example, is studying the possibility of introducing a third board, to complement the main board and Sesdaq, on which companies can raise capital as long as they have an approved financial adviser. If and when such a board were to be launched, and if China stocks were to proliferate, investors should recognise the risks are first and foremost company-specific and not country-specific.
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.
Is investing in China stocks riskier?
By R SIVANITHY
IT WOULD be tempting to conclude from the murky events surrounding the controversial ouster of Bio-Treat Technology's chairman last week that investing in China companies comes fraught with all sorts of unknowable risks and that investors have to be extra vigilant when dealing with such companies.
Coming just a week after China Food Industries (CFI) was found to have faked its accounts via various dubious schemes, and with the bitter taste of China Aviation Oil's spectacular collapse still lingering in the mouths of investors, the Bio-Treat incident not only cast the China segment in a poor light, it also provides ammunition for critics who think the local market should be less accommodating towards the listing of foreign companies, especially those from China.
'China was, and always will be, an opaque black box, and Bio-Treat and CFI should remind us of that,' remarked one observer, who also pointed to various profit shocks reported by China companies over the past six months by way of additional illustration.
The outcome of these unfortunate events has been significant underperformance of China stocks over the past few weeks as investors shun the segment in favour of local stocks. This is a shame. To be honest, investing in China companies should be seen as being no more or less risky than investing in any other stocks, regardless of country of origin.
For example, if boardroom trauma is viewed as enhancing investment risk because of increased managerial uncertainty, then recent upheavals at integra2000 and Vantage Corp (and to a lesser extent, the surprising boardroom developments at Robinson's) which have occurred over the past couple of months suggest that top-level displacements are just as likely to occur in non-China companies as in Chinese ones. If fraudulent financial reporting is the issue, then the pro-China camp can quite justifiably point to the calamitous practices of Citiraya Industries and Accord Customer Care Solutions, two of the more high-profile corporate collapses in recent times. Both were Singapore-based and Singapore-owned.
Questionable practices at the initial public offer stage? Again, the risks are just as high for local companies as China ones - recall the infamous circumstances surrounding Mid-Continent and Links Islands, two companies whose shares were cornered and manipulated soon after listing.
Some might suggest that China companies are more likely to cause profit shocks than their local counterparts. Again, this can be disputed. One might argue, for example, that the blow from Creative Technology's larger-than-expected loss announced this week could have been cushioned by a profit warning or guidance of sorts.
The important point to note is that in a relatively mature caveat emptor market and in a world where investment borders are no longer as clearly delineated as before, the onus is on the entire gamut of intermediaries like auditors, financial sponsors, lawyers, investment banks, underwriters and brokers to minimise the risk of shocks to the investing public. Companies, too, are responsible for being transparent and forthcoming with their disclosures.
Quite correctly, this is the model towards which the regulatory authorities are moving. The Singapore Exchange, for example, is studying the possibility of introducing a third board, to complement the main board and Sesdaq, on which companies can raise capital as long as they have an approved financial adviser. If and when such a board were to be launched, and if China stocks were to proliferate, investors should recognise the risks are first and foremost company-specific and not country-specific.
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.
posted by mrmoon at 8:37 AM
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