Long term China bull Shaun Rein warns against buying into listed Chinese companies, since in many cases they offer a receipt for trouble, he argues in CNBC. Not all NASDAQ listed Chinese companies are bad, but investors have to be very cautious.
Almost all suspended NASDAQ stocks belong to Chinese firms, Rein notes, and he sets some ground rules:
Another rule to follow is to be wary of firms that list in the US first because they did not qualify to go public on the mainland. Internet and social media companies Ren Ren[RENN 12.60 -0.56 (-4.26%) ], Youku [YOKU 44.49 -4.05 (-8.34%) ] and Dang Dang[DANG 19.95 -1.01 (-4.82%) ] recently listed on the New York Stock Exchange, but would not have been allowed to list on the mainland because they don’t have enough profits. Companies need three years of profits before they can go public on the mainland China exchanges. In the US, you do not need to show profits in order to go public. Most senior executives have told me they would rather list in China if they could because they expect the yuan to appreciate.
Also be careful of boutique banks, investor relation firms and accounting companies, called middlemen firms, which are responsible for taking companies public and for pumping up stock prices.
More in CNBC.