Why Investing In Chinese Stocks Can Leave Investors Vulnerable To Risk

Something about the deal smelled fishy.

China Marine Food Group Ltd., a Chinese company then on the New York Stock Exchange, spent $27 million in January 2010 to acquire a firm whose main asset was "algae-based drink know-how." The weird thing: Three months earlier, the beverage formula had been valued below $8,800.

But when the U.S. Securities and Exchange Commission tried to review the deal, it got nowhere. The company's Chinese accounting firm refused to provide documents. And the SEC has been stymied since.

And China Marine? Its share price topped $8 in 2010. It's now around 12 cents.

The case represents a cautionary tale for investors eager to invest in Chinese companies on American exchanges. Chinese companies like Alibaba Group Holding Limited (NYSE:BABA), whose initial public offering this year set a record high, operate under lax standards compared with other stocks on U.S. exchanges. That means higher risks for investors. Continue reading "Why Investing In Chinese Stocks Can Leave Investors Vulnerable To Risk"