China Hongxing Sports

[d.o.g.]

oh man.
This is depressing.
What use is MAS, if such a damn obvious case of fraud is allowed?

Yes, do your DD, independent research etc.
But in this case, the financials were audited, China Hongxing was given the "Most Transparent Foreign Company" award by SIAS (LOLOLOL!!) and the management printed out bank statements to show analysts and distributed them at AGMs...

I mean, what else could 1 do. If you have to assume every audited FS is bullshit, then there's no basis for any analysis.

I'd also point out that at the point where China Hongxing got suspended, it's shareholder list included institutions like JPM, State Street, pension funds etc

If I had my way, the Wu guys will be sitting in jail for a long time, part of which, should be accompanied by their auditors.

IMHO MAS/CAD/SGX are of no use at all in terms of retail investor protection. They are way behind the curve e.g. it was only in 2015 that MAS proposed to regulate land banking and precious metals buyback schemes, 10+ years after investors first began losing millions of dollars. Fraudsters have now moved on to ICOs. Maybe in 2027 MAS will look at ICOs, and of course by then scammers will have found some other method.

Audited financials don't mean much. Most frauds pass audits until they are discovered.

SIAS awards don't mean anything.

Bank statements are trivial to forge.

To disprove the fraud hypothesis, you can do a peer comparison. Usually there is at least one "known good" peer that can be taken as a reference. You can also check whether the cash outflow passes a financial Turing test - can you tell whether the dividends are paid from operations or from financing? If you can't, you can't disprove the fraud hypothesis.

Institutional investors may or may not do fundamental analysis. Some of them are just product manufacturers who decide they need an Asian fund, a technology fund, a consumer goods fund etc. Once the money is raised they buy whatever companies are in that defined space. Not everyone dives into the financial statements. Some are spoon-fed by brokers, others just buy everything that shows up on a screen.

Given the apparently low priority that commercial crime gets, investors have to be prepared to sue on their own. But because there is no class-action lawsuit framework in Singapore, investors have to sue individually, which is costly for all but the most wealthy - and for the most wealthy it's simpler and cheaper to take the loss and walk away.

Charlie Munger suggests inversion as a philosophy. So let's invert and assume the worst:

1. Prove that the business is not a lousy business that earns low margins, low returns on capital, needs lots of working capital etc.
2. Prove that the valuation is attractive relative to peers, the risk-free rate of return, the current market cycle and on an absolute basis.
3. Prove that the company is not a fraud created by inflating revenues, profits or cash flow.

If all this is too much work, then either find a professional to do it, or accept that every once in a while you will get hit by fraud so you need to diversify appropriately.

As usual, YMMV.