Money

Chinese stocks bloom in isolation

By Chen Weihua (China Daily)
Updated: 2010-09-04 10:04

Nation's growth offsets gloom in US, say fund managers

NEW YORK - Despite lingering pessimism in the United States economy, some American investors have shown unabated interest in investing in Chinese companies listed on US stock markets.

"China's growth in comparison to the United States and Europe is very, very attractive," said Mark Tobin, director of research of ROTH Capital Partners, a California-based investment bank that provides financing and advisory services to emerging growth companies in the US and China.

Tobin said he has talked to a lot of mutual fund and hedge fund managers who are looking for growth companies. "When they look at the US, they are struggling to find any. When they look at Europe, it's even more difficult," Tobin told China Daily.

China's gross domestic product (GDP) growth has stood for the past year at or above 10 percent. China's growth is still several times higher than any other country's in the world even as it slows to 8 percent.

China was the top performer worldwide last year during the global recession. The 70 US-listed Chinese companies covered by ROTH Capital Partners have registered a return of over 100 percent over the last 18 months. In 2009, the return was more than 120 percent.

"There are more and more US investors looking at China and see what are the best strategies for them to participate in the growth," said Byron Roth, chief executive officer of ROTH Capital Partners.

Roth's words were echoed by Bill Ford, chief executive of General Atlantic, a private equity investment firm that has also invested in China.

"We have been actively investing in China for over a decade and as global growth investors we continue to view the China market as very attractive," Ford said.

He said there are two key trends driving investment opportunities in China: the large and rapidly growing middle class that has impacted business and personal consumption and the fact that Chinese companies have global aspirations.

About 500 Chinese companies are now listed in the US, but half of them are inactive in the market. Only about 200-250 companies are worth looking into, Tobin said.

While he admitted that 2010 is a more difficult year than the last, Roth said his company takes a long-term view.

Related readings:  US stocks tumble as economy slows down  Stocks fall sharply as investors' gloom grows  Economist: Slowing US economy may drag down China's GDPt  GDP could be 2.5 times that of the US by 2030

"We try to stay consistent and believe in the sectors we believe. So when the market is bad, we don't retreat that much because it will come back again," said Roth, who has traveled to China about six times a year during the past five years.

Roth believes that US-listed Chinese companies should continue to move up the food chain to make them more attractive to a wide range of US investors.

High on the agenda is to go for the Big Four - Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers - to improve all kinds of corporate governance to meet the high-standard US market and hire a law firm that understands both China and the US.

While this might take time, Roth said Chinese companies are evolving and "we are making sure that everybody recognizes that they get on the train and make themselves more attractive to US investors".

According to reports, investor perception of US-listed Chinese stocks has worsened during the past few months due to concerns over corporate governance, internal controls, earnings quality and management credibility.

Croker Coulson, president of New York-based CCG Investor Relations, which advises on a number of US-listed Chinese firms, also expressed his worries.

"Many US investors have grown more cautious on investing in Chinese companies in recent months, largely due to concerns about accounting quality and corporate governance," Coulson told China Daily.