Even though Sino-Forest Corp. has fought back against allegations from short-selling firm Muddy Waters that the TSX-listed Chinese company has overstated the value of its assets, the shares have tumbled about 75 per cent in June and investors continue to turn away from China-focused companies.
Bloomberg News looked at 50 other stocks that trade on the TSX but have most of their operations and management in China, and found that the group has declined 15 per cent in June. The decline of this group is about four times worse than the slump endured by the S&P/TSX composite index over the same period of time and nine times worse than the performance of China's benchmark Shanghai stock exchange composite index.
Among some of the bigger declines: Fertilizer producer Migao Corp. fell 22 per cent after the Muddy Waters report on Sino-Forest was released, and fell another 20 per cent after reporting disappointing quarterly earnings; and Silvercorp Metals Inc. has fallen 20 per cent.
Coincidence? Not likely. The Bloomberg article quotes Marcus Xu, a money manager at Genus Capital Management in Vancouver, who said that the decline in Sino-Forest shares has shaken the confidence of investors: "It freaked people out," he told Bloomberg. "They got shell-shocked."
However, he believes investors should remember that the long-term upside to investing in the China growth story should outweigh the short-term turbulence. "If you believe in the China story, you can't panic," he said.
David Berman