Six Chinese stocks have made double-digit returns in 12 months
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In the last month fintech smallcap Fintech Chain (ASX:FTC) went from nonentity to a 500 per cent share return.
That’s not wholly unheard of among small caps; the really unusual thing is that this is a Chinese company.
Chinese companies have been on the nose since just after they stormed the ASX from 2014 onwards, bedevilled by corporate troubles, low returns and, since 2017, difficulties in getting money out of China to pay dividends and other fees.
Six were delisted last year, three in 2017, and almost half of rejected IPOs between 2016 and the end of 2018 were Chinese companies, according to ASX data.
A spokesman for the ASX told Stockhead the last Chinese listing was in 2017 and pre-vetting processes established in 2016 had weeded out many applicants from emerging markets, such as China, on corporate governance grounds.
With the number of Chinese listings now trimmed down to 38, it is likely to come as a surprise that six, including Fintech Chain, provided double digit returns in the last 12 months.
* Stockhead was able to track down 34 confirmed Chinese listings.
Animoca Brands (ASX:AB1) is better known as an online gaming company which made a mint from Crypto Kitties a year ago and kept going, rather than a Chinese company, while Vmoto (ASX:VMT) makes most of its money selling electric scooters in Europe.
Love Group (ASX:LVE) is making pots of money (five consecutive profitable quarters no less) off Chinese and Taiwanese dating apps.
It’s unclear what is driving the share price of extremely-lightly traded China Magnesium (ASX:CMC), which is struggling to find a new business to buy to keep it ticking over.
Energy Metals (ASX:EME), however, is in the hyper-popular vanadium sector where it has tenements in Australia — as opposed to more dicey countries like the DRC or Russia.
Fintech Chain makes software that is installed inside banks’ phone apps and merchants’ point-of-sale terminals to allow both to accept transactions in fiat and virtual — read: crypto — currencies.
Behind its price rise is a People’s Bank of China directive that merchants and banks are only allowed to use licensed providers like Fintech Chain, and a series of announcements around Chinese bank contracts since February.
These companies have thus far avoided the stigma of being tarred with the ‘Chinese stocks’ brush, a group that has earned its fair share of opprobrium.
It’s a picture that includes corporate flameouts like Traditional Therapy Clinics, which went into liquidation in January after failing to not only get its accounts past auditors, but to even maintain a functioning board.
There have been a number of murmurs this year around a class action against China Dairy, since delisted, after the company’s end that included someone lodging fake documents saying the chair and deputy chair had quit.
The ASX raised some questions last year around whether Bojun Agriculture’s (ASX:BAH) local directors were forced out for asking too many questions.
Sunbridge (ASX:SBB) is currently being quizzed about audited accounts and getting money out of China, and Tianmei Beverage (ASX:TB8) was put into liquidation in December.
So there’s plenty of cause for caution before you jump into the China stocks sector.
Fintech Chain’s new chairman Chis Ryan says they’ve beaten the stigma by making money and making “quality announcements”.
“We need to demystify the Chinese company sector on the ASX,” he told Stockhead.
“We find the challenge of explaining how we are recognising and managing those risks as being important.”
He said investors like Justin Rosenberg at Gleneagle Securities understood the money-making power of business-to-business (B2B) companies like Fintech Chain, but still worried about the exposure to Chinese sovereign risks.
Rosenberg told Stockhead he wasn’t familiar with Fintech Chain but noted Australian company Netlinkz (ASX:NET) which is selling communications technology in China and 99 Wuxian (ASX:NNW).
“NET exploded from 2c to 14c and back down to 9c on hype,” he said.
“Its an absolute minefield to work out whether [Chinese companies] will deliver or not. It’s really people riding the China wave.”
He said 99 Wuxian, with its white label retail software that sits inside banks’ apps, had a long history but hasn’t achieved its objectives.
The ASX spokesman says China is not a target market for the bourse as it’s had greater success bringing companies from Israel and New Zealand.
They do keep the channels open however by trying to educate businesspeople in China about Australian listings and corporate governance rules.
“Over the past five years ASX has tightened its admission rules, guidance and processes, particularly around the minimum spread of investors and minimum free float of shares, to address the challenges presented by companies from emerging markets,” he said.
“ASX may exercise its discretion to refuse admission where the applicant is established or has its main business operations in an emerging market.”