The U.S. equities market saw the introduction of sixty Chinese stocks between 2008 and 2011. But almost as soon as they appeared, many were soon departed from the U.S. equities market. As per Money Week magazine, twenty three Chinese stocks have delisted from the market. As such, 2012 has been a very somber year for Chinese stocks with just one listing on the U.S. equities market, while others were either privatized or delisted.
The reasons for the delistings are many:
- Some companies were de-listed due to fraud. This fraud-trail began with the emergence of several Chinese companies on the U.S. equities market by way of the speculative reverse-merger process.
- Delisting was due to the decision of some of the companies to pack up and obtain listings in Hong Kong and other markets.
- A few companies could not sustain themselves in U.S. markets due to a lack of demand and a general distrust of Chinese stocks.
Currently, Chinese companies are subject to high scrutiny and comprehensive reporting and as such, there has been a substantial decrease in the introduction of new Chinese stocks. Although many reliable Chinese stocks have had to put up with the general skepticism about their trustworthiness in the process, this system effectively reduces the participation of deceitful companies in the North American equities market.
This year, a number of big Chinese e-commerce initial public offerings (IPOs) that were conjectured to list in the U.S. equities markets have not made it there. Examples are 360buy.com (online retailer), Vancl.com (largest online clothing retailer in China), and Xiu.com (online seller of luxury goods). Of these three Chinese Internet plays, 360buy.com had plans to launch an IPO valued between $4 billion and $5 billion in the second half of 2012, which has since been delayed. After all, it will certainly take a considerable period of time for investors to trust these companies again. Once they are assured that the new procedure will effectively list only the stocks of sound Chinese companies, they will be more comfortable in dealing with them. Hence the near future is not quite optimistic for the pipeline of reverse mergers from U.S. companies, particularly from China.
Bloomberg Chinese Reverse Mergers Index (CHINARTO) is a market capitalization weighted index that tracks around 82 Chinese stocks trading on U.S. exchanges following reverse mergers. As of September 6, 2012, the index value year to date has dropped by 7.5% and by 22.5% over the past year; which indeed speaks about a weak performance with not much hopes of improvement.
Case In Point
Another Chinese company -- a maker of kitchen and home electrical appliances -- Shenzhen, China-based Deer Consumer Products, Inc. (NASDAQ: DEER) had to face a halt in its trading operations on the NASDAQ on August 13, 2012, because the company’s founders had been less than forthcoming when it came to supplying information about their operating results, which will only continue until it decides to supply the requisite data. When Jon Carnes, a short-selling trader appointed an independent third-party investigator on August 3, 2012 to visit two of the company’s factories in Yangjiang, there was no evidence of either any production work or its workers. The report also showed aerial shots of the facility that was devoid of trucks or activity of any sort, which posed a question mark on the company’s trustworthiness; how could a company that showed its strong growth in revenues not have any ongoing activity?
Fiascos like that are reason enough for investors to view Chinese stocks on the U.S. equities markets with doubt, as financial statements and newswires are the basis on which any company’s performance measured. Investors have been swindled in the past in similar cases and so exercising caution in the future will only natural for them.