Consumer China

Panning for gold: Listed Chinese small caps

  • Published 25 Mar 2010

Irregularities and fraud have become words associated with listed Chinese small cap stocks overseas, but among the dross the lure of a genuine nugget keeps some investors enthusiastic.

Investing in Chinese small-cap companies listed overseas can be a perilous business. Earlier this month, Nasdaq-listed Chinese jewellery designer Fuqi International (FUQI:Nasdaq) saw its share price plummet 37% on a single day of trading, following the company's acknowledgement that "accounting errors" may have affected its financial figures for the first three quarters of 2009. A week prior, Yuhe (YUII:Nasdaq), a Chinese company that rears chickens, saw its share price drop 18% when its auditor resigned. Two days later, a private investor filed a lawsuit against the auditor of China Sky One Medical (CSKI:Nasdaq), alleging "fraudulent misconduct" and violation of securities laws over alleged errors in the company's financial statements.

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