China’s new Shanghai-Hong Kong Stock Connect program opened up China’s domestic stock markets to international investors for the first time ever this week. This is a big deal: it brings China one step closer to being a “normal” investment destination. But before you plow money into Chinese stocks, there are a few things to consider. I shared my thoughts with Kira Brecht, writing for The Guardian:
Still, there are plenty of signs to suggest US investors should slow down and do their research before jumping into Chinese investments, particularly now.
One barrier: China’s companies are characterized by a lack of transparency to the West and an absence of legal protections. Analysts warn that accounting and disclosure standards in China don’t match up to more rigorous western standards…
All of this telegraphs risk, at least until the kinks are worked out.
Case in point: billionaire hedge fund manager John Paulson reportedly lost $468m in Chinese forestry company Sino-Forest Corp in 2011. The losses triggered questions regarding the accuracy of the accounting of the forest and timber land holdings.
“John Paulson is generally considered to be one of the most successful hedge fund managers, yet he lost a fortune in Sino Forest. If even he can get hosed in China, what hope does the individual investor have?” said Charles Sizemore, principal of Sizemore Capital Management.
Basic research could be a challenge.
“The US has a well laid out GAAP (generally accepted accounting principles). In China, things are less transparent. They don’t have the same accounting standards,” said Briefing.com’s O’Hare.
“You are at the mercy of the company giving you the numbers,” said Sizemore.
Read the full article here.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays.