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Explaining why this investor will never buy a Chinese-based stock

Ron Walter writes about his endeavors in investments
BizWorld_withRonWalter
Bizworld by Ron Walter

“What about buying Alibaba stock?’’ asked my friend.

Now Alibaba is the online Amazon, Google and eBay of China all rolled into one.

The stock started trading at $163 US six years ago and was on track for its $310 high a year ago.

“No way,” I replied, “Investing in China is too uncertain, too risky. They don’t observe commercial law like we do in North America. 

“Commercial law and the right to sue is on paper only and the courts are stacked against foreigners.”

Then I explained my experiences with investments in Chinese stocks.

The first was over 20 years ago when a small company listed on the old Vancouver Stock Exchange showed awesome potential.

The company, whose name I have forgotten, traded at six cents and had raised the money to build a poultry medicine factory and service the gazillions of chicken flocks in Communist China.

It was a no-brainer. Some of my friends bought in too. We watched the price climb to 10 cents for a paper gain of 66 per cent.

Then there was hardly any trades and some months later the exchange delisted the stock for failing to file financial statements.

Our investment was dead. The company had fled the coop with it.

Once bitten, twice shy.  Not me.

Greed got the better a few years later when I suggested our investment club buy into Noble China. Noble China had raised money to build two breweries in China in partnership with Chinese municipalities.

There was a lip smacking potential for a string of deals like this. We bought in.

For several months the company issued frothy progress reports. The club member reporting on Noble China had bad news one meeting.

Unknown to Noble China one of the municipal partners had taken the money to build the brewery and lent it to prop up another municipally-owned company in financial difficulties.

Noble China’s attempts to sue were all in vain. We managed to sell our investment at cost.

A few years later, an interesting Chinese company called Sino-Forest came to my attention. Sino Forest was in the forest plantation business owning one million acres.

The business plan was excellent. Trees in this part of China grew to harvest maturity in seven years compared with 20 in the South American rain forest.

The company invested in furniture factories, more plantation land and had a huge agreement to harvest Russian logs.

We were in the chips, making money on paper hand over fist until 2011. 

That’s when an American investor with the ironic name Muddy Waters went to see all these plantation lands. He came back certain that Sino Forest was a Ponzi scheme with no plantation land.

The price collapsed but our club and I had sold at a nice profit.

Sino Forest is no more. Noble China still exits as a privately-owned Toronto firm with one brewery in China.

My friend would have made a potful of money in Alibaba until a year ago when the price blew up like a balloon pricked by a pin.

The company founder Jack Ma had ticked off Chinese authorities with a speech. He disappeared from the public eye for months. A share offering by one of his companies was cancelled by government with no reason offered.        

Alibaba’s share price was cut in half to $150, is now at $165 and a subdued billionaire Ma has returned to the public eye.

CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.

Ron Walter can be reached at ronjoy@sasktel.net

The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.