Tuesday, July 13, 2010

Fronts

As a large country undergoing tremendous GDP growth rates, China is abound with investment opportunities. But investors must also be extra careful in dealing with emerging market companies, as their legal and regulatory situations do not protect investors to the same extent as they do in developed markets. This can lead to fraud in some cases.

Ever noticed that many directors of otherwise domestically-focused Chinese companies have Anglo-Saxon names? In many cases, these directors may be legitimate executives appointed to improve a business' operations. But a recent exposé by CNN suggests that the presence of white people in Chinese businesses in many cases is purely for show, sometimes bordering on fraud.

Chinese companies will go so far as to hire actors from overseas in order to bolster their reputations. If there are foreigners around Chinese companies, these companies appear to have prestige, money and connections, which encourages companies to fake it.

Often times, these actors are just brought along to impress government officials or clients. But CNN interviewed a few actors who had been hired to claim they were Vice Presidents or senior executives! One company allegedly swindled investors, and the actor who was claimed to be "in charge" of the company was investigated for fraud!

Emerging markets present a ton of opportunities, due to their potential to grow the labour force and the productivity of that labour force at tremendous rates. Unfortunately, they also present a whole slew of new risks that developed market investors are not used to. As such, investors must be particularly diligent in assessing potential investments in emerging economies.

6 comments:

Anonymous said...

What do think about AMEX:ALN?

Mark Carter said...

Anthony Bolton, a hugely respected and famous fund manager (at least in the UK), has recently set up a China Fund. If Bolton thinks there's value there, then I wouldn't want to be the man to bet against him.

OTOH - China - 'nough said. I have heard that they have been pumping up their economy lately, which is not the kind of thing I like to hear.

I wish Bolton and other investors in China all the best of British. I certainly wouldn't want to see Bolton's formidable reputation tarnished by what could be a horrible blunder.

I for one wont be putting any money in.

Anonymous said...

reminds me a bit of the North Korea "soccer fans" at the World Cup who turned out to be Chinese actors hired for the occasion.

Saj Karsan said...

Hi Anon,

I'll take a look sometime soon and let you know if I find anything interesting.

Anonymous said...

thanks!

Saj Karsan said...

Hi Anon,

It certainly has a compelling valuation. It could be a good one! For myself, however, I'd want to see a longer operating history.

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