Wednesday, 3 August 2011

China companies listed on BM

Some time ago Bursa Malaysia (BM) decided to allow companies from China to list in Malaysia. I strongly doubt if that was a sensible move. BM has already their hands more than full with the Malaysian companies, why make it even more difficult? Although I am rather skeptical about the situation in Malaysia, and receivables, assets, inventories etc can all be worth much less than assumed, at least "cash" on the balance sheet is indeed "cash".

In China however 100 million cash could be 100 million, but it could also be 50 million, or 10 million, or even zero. There have been stories circulating where auditors went to the bank and were assured all was ok, and later it turned out that the people they talked to didn't work in the bank. I even heard a story that the whole branch was fake (similar to the fake Apple stores they recently discovered in China).

Sounds like an episode straight from Hustle (one of my favorite series, highly recommended):

Both at the NASDAQ and the Singapore Exchange (the infamous "S-chips") there have been many fraud cases detected, and the shares of Chinese listed companies have suffered tremendously, routinely going for PE (Price Earnings Ratio) of 3 or even lower (the story is that one even went for a PE of 1!).

Some websites that have published horror stories of Chinese listed companies:

Some of the above writers had "vested" interests, they analyzed the company, either they or their customers "shorted" the stock (in other words gambled that the share would go down) and then they published their stories. Not too impressed about that, not my style, but the stories it self are very interesting, and should serve as a warning for what is going on.

I strongly recommend BM to rethink their strategy of allowing companies from China to list in Malaysia.

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