Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Chinese salt and chemical manufacturer Gulf Resources
So what: Investors in Chinese small caps won't be surprised to hear that the drop in Gulf Resources shares appear to be driven by a report posted on blog aggregator Seeking Alpha. Today's note comes from Kerrisdale Capital Management and questions the believability of Gulf Resources' profitability and other financial metrics. Specifically, the author compares the company's metrics to those of comparable companies and concludes that Gulf Resources may be inflating its results.
Now what: This is the same old song and dance in the world of Chinese small caps. The group has had a pall cast over it by a handful of companies that have either admitted to some form of shenanigans or have been painfully silent in the wake of serious allegations. This has given short-sellers the definite upper hand, and they've been making the most of it by posting missives against an array of Chinese small caps that have obliterated share prices.
Who's right? Unfortunately, in many cases it's hard to tell, and because the operating companies are located in China, getting good, solid information is dicey at best.
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