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‘Uninvestable’ Chinese Tech Stages Ridiculous Comeback Rally
Chinese tech shares surged a second day Tuesday, bolstering global risk sentiment and (finally) rewa
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Whatever the case, Zhou is “suspected of serious violations of discipline and law.” I suppose I don’t have to say this, but “serious violations” of Party discipline can result in punishment that is wholly disproportionate to the alleged infraction
… especially as the crime being recorded has nothing to do with the real crime being prosecuted – defiance or threat to Xi’s vision/goals/political ambitions…
One more reason why these stocks are ‘uninvestable’ (per H) for the run of the mill investor like myself. I learned the same lesson the hard way with Russian fossil fuels in 2003.
I looked into this a bit, because I am definitely a girl who likes a bargain. I will share some of my additional due diligence that led me to “no way, never”.
The US-China Economic and Security Review Commission was established in 2000 by Congress and the US Dept of Treasury. There are 12 appointed members and the purpose is to review the national security implications of trade and economic ties between US and China.
Their last report, dated May, 2021 states that there were 248 Chinese companies listed on US exchanges with a value of $2.1T. There are also 8 national level Chinese state owned enterprises (SOEs) traded on 3 US exchanges.
The Commission report lists 3 risks associated with investments in Chinese companies.
First, lack of transparency. The Public Company Accounting Oversight Board (PCAOB) established by Congress to work with the SEC to oversee accounting, auditing and reporting standards of public companies has been and is currently unable to inspect working papers of auditors based in China or Hong Kong due to the China government prohibiting this to occur. LOL because I am a retired CPA.
Second, the legal standing of variable interest entities (VIEs) is unclear. The PRC prohibits direct investment in many industries and to get around that rule, Chinese companies set up offshore, foreign subsidiaries to raise capital. Based upon multiple studies, the VIEs have questionable status under Chinese law. See report for more detail- but if you are buying an interest in a Chinese company, you are likely not buying a “legal interest”. Therefore, no protection in mergers, taking private or bankruptcy transactions. Again, LOL.
Third, national security risk. Investors in Chinese companies may support activities that are contrary to US national interests. Censorship, surveillance, military. Wow- greed really can trump putting America first!
GLTA.
Interesting and informative comment. Thanks for posting.
I think when anyone uses the term uninvestable, one should immediately look to buy some calls, which look very cheap as you have pointed out. Jim Cramer set off quite a nice rally when he said that about energy stocks. Obviously, you can’t overstay your welcome…