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Latest China Small-Cap Report Is Puzzling

Stocks in this article: SPU CCME SHZ

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- In early March, when I finally came to the conclusion that China MediaExpress (CCME) was likely to have accounting problems (before the stock was halted), the first thing I did was sell all of my China small-cap stocks.

It seemed clear to me that if the market lost faith in a company that was audited by Deloitte, backed by Starr Investments and covered by Global Hunter, that less-credible stocks were bound to suffer. As a result, I sold stocks that I liked and I sold stocks that looked too cheap. I keep following a few names where I am tempted to go long, but since everything seems to just keep going down, I have basically sat and waited.

Yesterday, one stock that I liked, SkyPeople Fruit Juice (SPU), was the subject of a short-sellers report by Absaroka Capital, which drove the share price down by 20%. Given that I visited the company, its distributors and retailers in January, I thought it might be useful if I weighed in with my views.

First, I was puzzled that anyone would bother writing a short report on a $2.50 stock that has little to no stock borrow for shorting. From a stock-price perspective, it seemed to be the equivalent of kicking a three-legged dog, just for the fun of it, and not for profit.

Even before delving into the body of the report, the report summary can be found to contain a number of statements that are easily contradicted. The authors note that they "struggled" to find SPU's products on store shelves. They must not have struggled much because, for me, I simply hopped a cab to Wal-Mart (WMT) and walked to the juice section where I saw their products displayed on a middle shelf close to international brands such as Dole. After struggling to find Wal-Mart, the authors did manage to find SkyPeople's product, but noted that it was on a bottom shelf, which is typically reserved for slow-moving goods. I easily found individual bottles on a middle shelf at arms reach, and I noted from the authors' photos that the particular products they were filming were cartons of juice in big boxes. It seems logical to put big boxes on lower shelves.

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