Many top investors have fallen in love with China stocks over the past few years. But not all that glitters is golden, hedge fund legend John Paulson and others are learning.
Money managers ranging from Fidelity Investments to Carlyle Group have chosen some Chinese stocks that flopped, The Wall Street Journal reports.
Paulson has owned about 14 percent of Sino-Forest Corp., a Toronto-listed Chinese company that has seen its stock plummet 76 percent in the last 10 days following a searing report from a short seller last week.
“They (Sino-Forest) overstated assets by billions of dollars and funneled money to an undisclosed subsidiary,” Carson Block, founder of investment firm Muddy Waters Research told The New York Times.
Paulson & Co. last week sent a letter to its investors, saying it is "aware of, and is investigating, (Block’s) claims," The Journal reports. The Sino-Forest position represents only about 2 percent of its Advantage hedge fund, Paulson’s firm says.
Shares of some Chinese companies soared after the financial crisis, with investors looking at China as an island of strength amid a world economy in troubled waters.
But many of these stocks have hit the skids in recent months, as regulators and investors are starting to question the truthfulness of the companies' financial reports and operations.
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