Amy's photoAmy Sommers by Fantake via Flickr

China stocks are hot at the US markets, whether they go IPO or through merging a shell, while class action law suits against Chinese companies go up. Shanghai-based lawyer Amy Sommers looks in Forbes at the risks for investors.

Are US investors in China companies intrigued by the China brand and playing ‘pin the tail on the donkey’ in their investment decisions? From where I sit in Shanghai, that’s my general impression. 

For those interested in investing in China companies, I would recommend viewing a company’s reverse-merger history as a potential red flag deserving of further scrutiny of business fundamentals before proceeding. An IPO led by a reputable investment bank may be somewhat less risky. 

Also, bear in mind that the listing standards for the Shanghai exchange are very high – China’s capital markets are still relatively undeveloped and so the CSRC limits listings to companies they deem mature. Consequently, the Chinese companies that are pursuing listings on exchanges outside of China generally are doing so because they can’t qualify to list in China, perhaps in part because they are more volatile/immature. As a result, generally speaking such companies have a higher risk profile. If investors recognize this and allocate their capital accordingly, then they are consciously assuming risk and can plan accordingly.

More in Forbes.

Amy Sommers is a speaker at the China Speakers Bureau. When you need her at your meeting or conference, do get in touch.
The China Speakers Bureau will be live on air at the American Entrepreneur Radio tonight. Check here for more details. 

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