China Xiniya Fashions ADR – Trading Sub Cash

October 3, 2011

The route in all things related China has created a number of anomalous investment situations. Hong Kong listed stocks have been pulverized over China hard landing fears but any China stock that has been US listed and subject to less corporate governance scrutiny has been annihilated. There are many stocks in this space where to go down from here; the stocks must be a fraud. That isn’t to say that there are not many other Chinese ADR frauds. I would speculate that there are for companies that have not gone through the IPO process. For stocks that have IPO’d and are not reverse mergers it may be far-fetched to believe that all the stocks are frauds.
Here is just one example among many. China Xinya Fashion is a small cap Chinese ADR. The stock has a USD market capitalization of $85M. The cash on the balance sheet is $121M. The company is free cash flow positive the past five years and generating cash. There is no debt on the balance sheet. My conclusion is that there must be fraud going on for this stock to trader lower from here. Interesting situations that the market crisis has created.

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