Thursday, September 09, 2010

Listed in the US (Chinese US-only shares seeing nasty pattern)

After the US close on Friday, CSKI (headquartered in Mainland China) updated guidance and lowered numbers. The timing was laughable, as the report was delivered a little after 5AM in China, on a Saturday.

Given the fiduciary responsibility to shareholders, one must assume the company execs pulled an all-nighter at the end of the work-week to discover the disappointment - and went to press before breakfast; asap.

Concurrently, CSKI announced their CFO was resigning...for health reasons.

The market pictured a CFO with an unhealthy amount of pantyhose wrapped around his neck I guess, because it traded the stock down 30% in the after-market Friday; ahead of a 3-day weekend. Things were not any kinder on normal trading then Tuesday.

Now, this week, we see CAGC and FUQI have met similar fates, with SEC inquiries and auditor controversies throwing shares of these US-only traded Chinese companies to the lions.

Traders should read yesterday's article regarding the China Discount, by Ian Wyatt. But more important, understand that a pattern has developed and has hit someone hard three times now in as many days. Even if a Chinese name traded in the US is thoroughly above-board with all matters accounting, the market may very well reel these names lower; bracing for the potential wrecking ball that comes with uncovering fraud.

Since the Chinese solar names (traded in the US) began moving higher in early 2007 (and out-performing all other leadership in that rally year), I've been keen on trading leadership Chinese ADRs, ADS's and US-only listed names out of China; from a variety of industries. I assumed risk was deeper than normal and as such I avoided traded any of these unless in a clear uptrend. At the moment now however, given the developing pattern, I'm out of any individual Chinese issues trading in the US and will watch how this plays out from here.

This is unfortunate, since the Asian markets are leading again. But just as the US-traded Chinese names were capable of trading far higher than the corresponding Eastern indices in the past, these same plays can trade well below relevant indices going forward. They have seldom been directly linked.

They're great while they're going up, but it's Hell-to-pay once declining. This year's JKS has a tendency to become last year's CAGC. Good trading.

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