China-Biotics Shares Plunged: What You Need to Know

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 probiotics products specialist China-Biotics (Nasdaq: CHBT  ) were looking green around the gills today, shedding as much as 18% in intraday trading.

So what: This has been quite a day for Chinese small caps. China-Biotics is the third stock that I've covered to get hit by fraud-ish allegations today, joining Yongye (Nasdaq: YONG  ) and Gulf Resources (Nasdaq: GFRE  ) . China-Biotics apparently owes its woes to a Seeking Alpha post by an individual investor trying to "perform a mini-DD (due diligence)." When that effort raised some head-scratching issues, emails to the company and related third parties didn't bring the author clarification. As a result, he decided to sell his shares in the company.

Now what: Perhaps I'm missing something in today's drop, but it's pretty jaw-dropping if it is indeed being driven by one Seeking Alpha post. There's not a whole lot of heft to the post, and the conclusion seems to be that since the company didn't respond to a series of emails, the worst-case scenario must be true. This is no knock against the author -- he's simply sharing his personal views and investment decision. Instead, it's a knock against investors in the Chinese small-cap segment, who have become so scared of their own shadows that any small bump in the night sends them jumping through the nearest window.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (8) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2011, at 4:37 PM, MKArch wrote:

    Maybe the article you cite isn't all that damning to CHBT but the fact that the revenues they report to their own government are only about 1% of the revenues they report to investors half way around the world with no recourse should be pretty scary to a CHBT investor.

  • Report this Comment On May 19, 2011, at 5:10 PM, goldminingXpert wrote:

    This company was proven fraud months ago (see the missing stores debacle) and has only recovered due to short covering. Any spark, even a SA post, can send this tanking. It's a zero.

  • Report this Comment On May 19, 2011, at 5:50 PM, buffalonate wrote:

    I checked out all of the insider trades for the companies that have been short attacked awhile back and none of them ever bought shares. Tells me all of them are either frauds or run by idiots.

  • Report this Comment On May 19, 2011, at 5:51 PM, TMFKopp wrote:

    @goldminingXpert

    *Proven* fraud? That's curious... why haven't shares been halted or the stock delisted?

    Care to provide a link?

    Matt

  • Report this Comment On May 19, 2011, at 5:55 PM, isaaccroma wrote:

    sorry ,but i just speak spanish

    no conozco la situacion real de estas empresas,pero puedo decir q admiro lo q china ha promovido en oportunidades a un pueblo q anduvo por las sendas del atrazo historicamente hablando. debo senalar q conozco algo del mundo de la agricultura y mi humilde opinion q empresas como yongie auspiciadas por el propio estado desarrollan tecnologias de punta para un pueblo q seguira en la senda de crecimiento en un area vital como lo es la alimentacion

  • Report this Comment On May 19, 2011, at 6:15 PM, kkawohl100 wrote:

    GFRE is a value play.

    Top Institutional Holders

    Holder Shares % Out Value* Reported

    FMR LLC 3,336,590 9.61 35,668,147 Dec 31, 2010

    VANGUARD GROUP, INC. (THE) 648,045 1.87 6,927,601 Dec 31, 2010

    BALYASNY ASSET MANAGEMENT, LP 500,000 1.44 5,345,000 Dec 31, 2010

    ROCHDALE INVESTMENT MANAGEMENT INC 330,764 0.95 3,535,867 Dec 31, 2010

    STRAUS CAPITAL MANAGEMENT LLC 282,500 0.81 3,019,925 Dec 31, 2010

    OBERWEIS ASSET MANAGEMENT INC. 266,800 0.77 2,852,092 Dec 31, 2010

    Two Sigma Investments, LLC 264,271 0.76 2,825,056 Dec 31, 2010

    HighTower Advisors, LLC 167,035 0.48 1,785,604 Dec 31, 2010

    Oxford Asset Management 115,624 0.33 1,236,020 Dec 31, 2010

    GUERRILLA CAPITAL MANAGEMENT LLC 112,070 0.32 1,198,028 Dec 31, 2010

    Top Mutual Fund Holders

    Holder Shares % Out Value* Reported

    FIDELITY DIVIDEND GROWTH FUND 2,476,640 7.13 22,190,694 Feb 28, 2011

    VANGUARD SMALL-CAP INDEX FUND 308,449 0.89 3,297,319 Dec 31, 2010

    Fidelity Select Portfolios-Materials 278,029 0.80 2,491,139 Feb 28, 2011

    Oberweis China Opportunities Fund 266,800 0.77 2,852,092 Dec 31, 2010

    VANGUARD SMALL-CAP GROWTH INDEX FUND 192,621 0.55 2,059,118 Dec 31, 2010

    Fidelity Global Commodity Stock Fund 188,595 0.54 1,689,811 Feb 28, 2011

    SATUIT CAPITAL MICRO CAP FUND 148,000 0.43 1,413,400 Jan 31, 2011

    VANGUARD TOTAL STOCK MARKET INDEX FUND 101,268 0.29 1,082,554 Dec 31, 2010

    ROCHDALE MID/SMALL GROWTH PORTFOLIO 96,000 0.28 594,240 Mar 31, 2011

    ROCHDALE MID/SMALL VALUE PORTFOLIO 89,500 0.26 554,005 Mar 31, 2011

  • Report this Comment On May 19, 2011, at 8:10 PM, whofish wrote:

    I just read the news and go with the links to here. I never heard this company before, so I did some DD in 10 minutes. It was an obvious fraud company. Reason:

    1, I spend 5 minutes to find the company's Chinese website. It was amazing this company has different website in English and Chinese. Why?

    2, I live in Shanghai last 20 years but I never heard this company and it's product. I know all the competitor's brands you guys mentioned, Like Only, Bright. I just never heard Shuangjin or Shining. For me, it is just another joke.

    3, To be frank, I heard Yongye before. That's why I'm trying to find out what happened here.

  • Report this Comment On July 26, 2011, at 8:51 PM, goldminingXpert wrote:

    As I said, proven fraud at CHBT.

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