China Small Cap Research

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The Wall Street journal recently ran an article entitled “Big Interest in China Small Caps”, some excerpts of which we found particularly interesting:

There’s a lot of interest these days in small Chinese companies listed in the U.S., but not a lot of information about them.

To plug that gap, foreign research firms are expanding their China-based teams. The trend could improve the liquidity of the roughly 180 such small-capitalization stocks. Ultimately, it could narrow not only the information gap but also a valuation gap between these small-cap stocks and their mid- and large-cap Chinese cousins trading in the U.S.

The research deficit has exacerbated the volatility of these stocks, which have a market value of less than $1 billion, and their susceptibility to market talk, especially on the over-the-counter Bulletin Board. More research could temper some of that volatility.

The article goes on to mention that sell side analysts who cover large Chinese companies typically are based in Hong Kong or the US, rarely speak Chinese, and only occasionally visit mainland China. This approach is obviously unsuitable for small cap companies  regarding which there is little information available to foreign observers – many such companies may not even have any English-speaking executives, so access to local expertise is essential for an informed foreign investor.

For the last few months, Integrity Research has been aggressively expanding its coverage of Chinese research. We focused our search on firms that had a local presence, and especially those who would be able to provide detailed and insightful alternatives to traditional sell-side research.

We have identified over a dozen economic and investment strategy research firms focused on China, over twenty traditional fundamental research providers, several market researchers and expert networks with a strong local presence in China, and a small number of firms with particularly unique China research products, including: contrarian small cap recommendations, forensic analysis, insider trading analysis, and technical analysis.

As opposed to the Wall Street Journal, we have found that informed research is available on small-cap China stocks, if one knows where to look.

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