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Latest China Small-Cap Report Is Puzzling

Stocks in this article: SPUCCMESHZ

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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