Chinese tech stocks nose dive

Discussion in 'China' started by Armand2REP, Sep 30, 2011.

  1. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    China tech stocks dive on threat of US fraud probe

    Chinese internet stocks have dived in New York trading after the US Justice Department said it was considering launching a fraud investigation.

    The news was disclosed by Robert Khuzami, director of enforcement at the US financial services regulator.

    Youku, which models itself on web video firm Youtube, was among the hardest hit, falling 18%.

    Chinese search engine firm Baidu fell 9%, rival portal site Sohu lost 5.3%, and messaging firm Sina dipped 9.5%.

    The fraud concerns have arisen after accounting irregularities emerged at a number of Chinese firms whose shares are traded in the US.

    "There are parts of the Justice Department that are actively engaged in this area," said Mr Khuzami, when asked by the Reuters news agency whether criminal cases were being prepared.

    He also confirmed that other federal prosecutors are involved in the investigation, but did not identify them, nor which Chinese companies and auditors are being looked into.

    'A big issue'

    The probe is the latest spotlight to fall on Chinese companies and their accounting practices.

    Deloitte Touche Tohmatsu resigned as auditors for software firm Longtop earlier this year, after the accountancy firm claimed to have uncovered evidence of falsified financial records.

    Questions have also been raised over the indirect way in which some Chinese firms obtained their US stock market listings.

    Normally, a firm conducts a formal "initial public offering" on a stock exchange - something that is heavily regulated in the US and requires the detailed disclosure of a firm's finances to prospective investors.

    However, many Chinese firms followed another route to market known as a "reverse merger".

    This method involves the Chinese company being bought up by a smaller US firm that was already listed on a stock exchange, such as the Nasdaq, thereby minimising the company's disclosure requirement.

    "Not having proper accounting and reliable audit review for publicly traded companies with operations in China is just not acceptable," said Mr Khuzami.

    BBC News - China tech stocks dive on threat of US fraud probe
     
    Last edited: Sep 30, 2011
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  3. cir

    cir Senior Member Senior Member

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    So what? Those stocks are highly valued and deserve to have a reality-check.

    By the way, it is the American public or institutions who bought the stocks.

    The Chinese original investors have made a bunch out of listing on the NASDAQ.

    Too bad for the Americans.

    Now these firms should delist and get relisted on the domestic exchanges. :)
     
  4. redragon

    redragon Regular Member

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    when dot com bubble burst, there were more US or European companies did this, why the surprise? new companies or tech will still come out
     
  5. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    It isn't too bad for the Americans if the DOJ finds fraud. China can't afford not to do business with Americans so they will be made to pay. If not, no Chinese company will ever be listed in any Western stock exchange again. Try raising any money from capital markets after that... never.
     
  6. nefory

    nefory Regular Member

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    ehh, no need to make a big deal out of it. This is ordinary daily bullshit in financial market if you do watch news regularly.
     
  7. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    It isn't a big deal if it is one company as usual. This is over a dozen Chinese IPOs.
     
  8. redragon

    redragon Regular Member

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    Looks like you don't familiar with financial market as well, let me guess, you are a university student studying in China.
     
  9. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    China is an export economy. Export economies are dependant on other economies. China has not reached the point where it is a self sustaining economy and much of the assets China holds are debt assets that have no value. There is also a fear among foreign investors about the accuracy of Chinese companies reported earning/growth.
     
  10. nefory

    nefory Regular Member

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    There a lot of Chinese Tech firms listed in Nasdaq as well. Again, there are lots of commercial warfare between U.S and China these days. This so called "fraud", along side with other accusation of China being responsible for trade protectionism, dumping and manipulating domestic market, are just like side meals. If you take a high ground to exam this warfare, Yuan vs Dollar is the main issue.
     
  11. Daredevil

    Daredevil On Vacation! Administrator

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    If fraud is uncovered, will these chinese companies kicked out of US stock markets??. That would be funny. People will never invest in such stocks again.
     
  12. nefory

    nefory Regular Member

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    Make no mistake, I said " it's no big deal" is because the accusations of fraud, like most of the legal arguments in financial market, are solvable. Like Amand said, Chinese firms will have to pay a huge amount in order to have the case settled. Instead of this legal cases, currency warfare between U.S and China concerns me much more. The Yuan threatening the dominance of dollar is one of the unsolvable conflicts between U.S and China.
     
    Last edited: Sep 30, 2011
  13. nefory

    nefory Regular Member

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    who, me? Nah, i'm an engineering student studying in uk
     
  14. Daredevil

    Daredevil On Vacation! Administrator

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    Accounts probe dents Chinese stocks in US

    By Ajay Makan and Kara Scannell in New York

    Prices of US-listed Chinese stocks fell after the Securities and Exchange Commission’s enforcement chief said the Department of Justice is looking into accounting practices at Chinese companies, following a series of high-profile scandals this year.

    Internet stocks were hit hardest. Baidu, the search engine company, fell 9.2 per cent to $110.29 and e-commerce site Sina was down 9.7 per cent to $73.23 on Thursday. The recently listed video streaming site Youku fell 18.3 per cent to $16.24.
    More

    In 2010, the SEC launched an investigation into so-called reverse mergers, which allow companies to bypass the scrutiny of an initial public offering by taking over a shell company already listed on a US exchange.

    That investigation has focused in on accounting practices after at least 25 New York-listed Chinese firms disclosed discrepancies in their filings, or saw their auditors withdraw, in the first half of 2011.

    On Thursday, Robert Khuzami, SEC enforcement director, told Reuters that “parts of the justice department are actively engaged in this area,” as well.

    The DoJ did not comment, but the Federal Bureau of Investigation and US prosecutors are investigating some China-based companies that have accessed US markets, people familiar with the matter say.

    The SEC has referred investigations to the justice department in the past where there has been evidence of criminal wrongdoing. It is not clear in this case if the DoJ has launched an investigation independently.

    Ryan Detrick, technical analyst at Schaeffer’s Investment Research, said he was not surprised to see investors take money out of Chinese internet stocks.

    “So much money went into these stocks on a speculative basis, on hopes for Chinese growth, rather than fundamentals,” he said.

    Internet and small-cap stocks have suffered during recent market volatility, as investors have sought the safety of blue-chip dividend paying stocks. The Dow Jones Industrial Average of the 30 biggest US stocks has outperformed the smaller cap and tech-heavy Nasdaq Composite index by almost 4 per cent this week alone.

    “In this environment, if a stock has any question mark hanging over it, investors aren’t willing to take the risk, with safer names available at good valuations,” said James Cordwell, a tech company analyst at Atlantic Equities.

    But investors have been paying particular attention to China-based companies since June, when Muddy Waters, a research firm founded by shortseller Carson Block, accused the Chinese timber firm Sino Forest of overstating its sales.

    C Ming Zhao, an analyst at Susquehanna Financial Group, said Chinese stocks were being unfairly targeted. “You have fraud at US firms too, but you wouldn’t sell Apple and Google, because of what happened at Enron.”

    He said well-established Chinese stocks, with transparent accounts, should not be treated in the same way as newly listed companies.

    “Stocks like Baidu and Sina Corp are being unfairly tarnished. American investors should do their homework on company fundamentals, rather than trading on news flow,” he said.
     
  15. redragon

    redragon Regular Member

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    No, I was replying to the french boy
     
  16. nefory

    nefory Regular Member

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    Armand is in China?
     
  17. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Many of them have already been delisted and you are right, people are not investing in them with all this fraud which is why the stock prices are collapsing. When fraud is discovered, it will end Chinese tech firms trading in the West.
     
  18. redragon

    redragon Regular Member

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    Yes he is in Guangzhou, according to himself
     
  19. redragon

    redragon Regular Member

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    still a lot tech firms trading in the west, can you be more precise?
     
  20. Godless-Kafir

    Godless-Kafir DFI Buddha Senior Member

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    You wont complain and hunt him down? :D
     
  21. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    He is too late, I left GZ nearly a month ago.
     

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