How China Small-Caps Can Come Clean
Lack of responsiveness to investors
There is a wide gap between Chinese small-caps in terms of their responsiveness to investors. Yesterday, I sent an email to a Chinese small-cap company's internal IR person; he called me within an hour and he was very well informed. In other cases, companies are slow to respond, if they respond at all. Some of this can again be blamed on the language gap, but for larger companies, they either need to be able to respond to investors on a timely basis or cough up some money and hire an external IR firm. The ones who figure this out will trade much better than the ones who don't and as a rule I make it a point to not invest in companies who are not responsive.
The conclusion I reach from all of this is that, while there are frauds in Chinese small caps, the very widespread lack of confidence and depressed valuations for the space as a whole are a crisis of their own making. Some companies will figure this out and make the right changes and will see a benefit to their share price, others will not and will continue to languish.
My goal in 2011 will be to distinguish between the companies that can make these changes on a rapid basis and restore investor confidence. Obviously, the most important changes will be the switch to focusing on filing correct SAIC documents (and hopefully disclosing them) as well as the upgrading of auditors. I am hopeful that we will see significant progress in this area in the first quarter of 2011 and I will be sure to highlight companies that are making the right moves.Disclosure: The author is long ONP. The author can be reached at comments @ pearsoninvestment.com.
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