Money

Chinese stocks bloom in isolation

By Chen Weihua (China Daily)
Updated: 2010-09-04 10:04

Wall Street's short sellers have grown more aggressive in exploiting differences that sometimes exist between these companies' financial reports filed with the US Securities and Exchange Committee and other authorities in China to question if the revenue and earnings reported by Chinese companies can be trusted.

"This is setting the bar higher for Chinese companies to build up their internal accounting and finance teams, engage better known audit firms, and make sure that they have respected and active independent directors," Coulson said.

"After a very active run of equity financing by Chinese issuers, some investors are also questioning if the money they put into these companies is being deployed effectively.

"In today's market, it is not enough to have strong numbers. Trust in management is the most important factor driving investor decisions."

"We expect companies that listen carefully to what matters to investors, show their commitment to public company infrastructure, and consistently execute their business plan will be rewarded over time," he added.

A due diligence session on all these concerns was part of the 2010 ROTH Hawaii Conference held from Sept 1-3 at the Grand Wailea Resort in Maui.

Tobin acknowledged that while Chinese companies are usually regarded as riskier than US companies, sometime it is just a lack of understanding due to cultural differences or language barriers.

To Tobin, this has also become an opportunity for the company. "You get very high quality Chinese companies that are just misperceived and those are ones we try to identify and tell their stories to our investors," said Tobin.

In the three-day meetings in Maui, some 70 institutional investors will meet top executives from 18 US and 32 Chinese companies from a wide range of sectors such as media and Internet, software, clean technology, industrials, health care, business services, energy and infrastructure.

Most of these sectors will be discussed in detail by a series of panels on China's macroeconomics, consumers, automotives, technology, energy, infrastructure and social infrastructure.

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Tobin, who worked in Shanghai as director of China research for the company from 2007-2009, said one common topic he has been talking a lot about is that what's going to happen next when the Chinese government stimulus package winds down.

This has been a frequent question from investors in the infrastructure sector.

"My response is that you really have to decompose that sector. There is a segment that is still going to grow fast even if the stimulus is gone," he said.

"Rail, for example, will continue to perform well and the same is true with water infrastructure," he added.

ROTH Capital has also painted a rosy picture for the energy sector.

Chinese government's recent plan to spend 5 trillion yuan ($735 billion) to develop clean energy sources and upgrade conventional energy uses over the next decade has also been regarded as unprecedented opportunities for alternative energy players.

There is also a high expectation for domestic consumption to become a major driving force for China's GDP growth.

"We are looking at companies that have some specializations that are unique about them and have high growth margin," said Roth.

He added that his research team in Shanghai has done an excellent job in identifying those firms in collaboration with researchers based in California.

Workers lay railway tracks near a new station in Shanghai. China is spending 5 trillion yuan ($735 billion) on new railways by 2020. [Shen Qilai / Bloomberg]