Warnings Abound on Chinese Securities

June 10th, 2011
in econ_news

Chinese bandit Econontersect:  Accounting scandals have been accumulating for Chinese companies, including some registered to trade on U.S. exchanges.  Warnings about the risks in Chinese stocks are coming from a number of places.  The SEC (Securities and Exchange Commission) said yesterday (Thursday) that investors were urged to review company filings and, in particular, watch for Chinese companies that are not required to file financial reports with them (the SEC), according to Reuters.  In Hong Kong, Martin Wheatley, the outgoing chief executive officer of the Securities and Futures Commission for that financial center, called Chinese stocks "the new dot.com", according to The Wall Street Journal.

Follow up:

From the WSJ

"Everybody wants a piece of China," Martin Wheatley said in an interview on his final day as chief executive officer of the Securities and Futures Commission. "Therefore, there has been a rush to Chinese companies" without investors asking the normal questions about their fundamentals, he said, comparing the run-up to the Internet stock boom of the late 1990s in the U.S.

The comments by Mr. Wheatley come amid scrutiny of accounting practices and allegations of fraud at some overseas-listed Chinese businesses. The Securities and Exchange Commission has set up a group to investigate problems with a number of Chinese companies that trade on U.S. exchanges. Trading in several stocks of U.S.-listed Chinese companies has been suspended amid allegations of accounting irregularities and other improprieties.

From Reuters:

The Nasdaq Stock Market also moved on Wednesday to toughen up proposed new listing requirements for companies that had gone public by combining with listed shell entities. It plans to seek additional financial information for such foreign entities, stressing it must be in English and filed within six months of the end of the relevant quarter.

The SEC, which has also launched a broad investigation into accounting irregularities and audits of Chinese and other foreign companies listed in the U.S., is being slammed by some for jumping in far too late.

"This is akin to trying to put the horse back in the barn," said Lynn Turner, former chief accountant for the SEC.

Sources:  Reuters and The Wall Street Journal

Hat tip to Sanjeev Kulkarni

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1 comment

  1. Elliott Morss says :

    For individuals, I think picking stocks is crazy. ETFs are a great investment vehicle, most of the time. There are two exceptions:

    1. when a mutual fund has outperformed the ETF for a significant period of time, or
    2. When the market is "rigged". Chinese stock exchanges are used by the government to sell off state eneterprises et al. They are rigged. For my solutions, see http://www.morssglobalfinance.com/buying-equities-rethinking-the-etf-frenzy/

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