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Soruce : FT Tilt

Sino investing 101: Paulson and Bolton editionSino investing 101: Paulson and Bolton edition

Soruce : Denise Law 

For a while, John Paulson and Anthony Bolton were the poster boys for the China growth story. Now, they’re simply high-profile examples of pit-falls of investing in Chinese stocks.

Clearly, even high-profile fund managers were unable to spot and avoid the damage from the SEC investigation into US-listed Chinese small-caps, which have taken a big hit on concerns over allegations of fraud, particularly those that listed in the US through the back-door.

But what’s happening to these allegedly fraudulent companies isn’t China-specific, nor is it a Chinese phenomenon, Chris Rynning, chief executive of private equity firm Origo Partners, told FT Tilt in Beijing.

“It’s not genetic that the Chinese are less trustworthy. It’s an error on the side of Western investors to implement the Western value system when investing in Chinese stocks,” he said.

Word on the street is that Paulson’s $9bn Advantage Plus fund lost more than 13 per cent in the early part of this month, according to The Guardian. It’s down nearly 20 per cent since the beginning of the year due largely to bets on US banks and Sino-Forest, the Chinese forestry company that’s been accused of fraud.

As we’ve reported extensively, Sino-Forest’s shares have fallen more than 80 per cent since research firm Muddy Waters released this report in early June, accusing the Chinese company of inflating its timber holdings, among other allegations.

As Sino-Forest’s largest shareholder, Paulson may have lost about $531m since the report was published, according to Bloomberg. Sino-Forest said earlier this week that it’s seeking advice from Paulson on how to deal with Muddy Waters’ allegations, which the Chinese company has furiously denied.

Meanwhile, the net asset value of Bolton’s China Special Situations Fund has dropped 20 per cent since the beginning of this year, as the FT reported.

Just a few months ago, inflation was the biggest concern for fund managers with investments in China; now, the SEC investigation has become another reason to dump Chinese stocks.

But there’s good news: in about six months, the SEC probe will more or less force dodgier Chinese companies to de-list or fade into obscurity. And that’s when investor appetite will return, Rynning said.

“The [SEC crackdown] is a cleansing process, to let investors know that investing in China isn’t like investing in a Western-listed stock,” Rynning said.For a while, John Paulson and Anthony Bolton were the poster boys for the China growth story. Now, they’re simply high-profile examples of pit-falls of investing in Chinese stocks.

Clearly, even high-profile fund managers were unable to spot and avoid the damage from the SEC investigation into US-listed Chinese small-caps, which have taken a big hit on concerns over allegations of fraud, particularly those that listed in the US through the back-door.

But what’s happening to these allegedly fraudulent companies isn’t China-specific, nor is it a Chinese phenomenon, Chris Rynning, chief executive of private equity firm Origo Partners, told FT Tilt in Beijing.

“It’s not genetic that the Chinese are less trustworthy. It’s an error on the side of Western investors to implement the Western value system when investing in Chinese stocks,” he said.

Word on the street is that Paulson’s $9bn Advantage Plus fund lost more than 13 per cent in the early part of this month, according to The Guardian. It’s down nearly 20 per cent since the beginning of the year due largely to bets on US banks and Sino-Forest, the Chinese forestry company that’s been accused of fraud.

As we’ve reported extensively, Sino-Forest’s shares have fallen more than 80 per cent since research firm Muddy Waters released this report in early June, accusing the Chinese company of inflating its timber holdings, among other allegations.

As Sino-Forest’s largest shareholder, Paulson may have lost about $531m since the report was published, according to Bloomberg. Sino-Forest said earlier this week that it’s seeking advice from Paulson on how to deal with Muddy Waters’ allegations, which the Chinese company has furiously denied.

Meanwhile, the net asset value of Bolton’s China Special Situations Fund has dropped 20 per cent since the beginning of this year, as the FT reported.

Just a few months ago, inflation was the biggest concern for fund managers with investments in China; now, the SEC investigation has become another reason to dump Chinese stocks.

But there’s good news: in about six months, the SEC probe will more or less force dodgier Chinese companies to de-list or fade into obscurity. And that’s when investor appetite will return, Rynning said.

“The [SEC crackdown] is a cleansing process, to let investors know that investing in China isn’t like investing in a Western-listed stock,” Rynning said.