I linked to your piece in my post for today - Emerging Market Links + The Week Ahead (April 1, 2024) https://emergingmarketskeptic.substack.com/p/emerging-markets-week-april-1-2024

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Mar 27Liked by IJW

Damn Noah! Thx man

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Mar 23Liked by IJW

maybe this is helpful. indicators for fraud related to Chinese stocks are covered here: https://www.gmtresearch.com/en/research/faking-cash-flows/

this is the summary for the 0 - 4 point score:

• 1 point for being overly profitable (in the top quintile): Companies which are overly profitable relative to peers, as defined by operating margins or returns on production assets (operating profit/PPE plus inventory). A full 98% of frauds recorded EITHER a very high operating margin OR return on production assets.

• 1 point for non-production assets: A build-up, or high level, of non-production assets (total assets less PPE plus inventory) relative to Cost of Goods Sold (COGS). The single largest problem with fake cash is that it is difficult to extract from a company: it can’t be paid out as dividends if it doesn’t exist. As such, it needs to be parked on a company’s balance sheet, normally as a non-production asset, such as cash or prepayments. In our sample of Chinese frauds, 87% of companies recorded EITHER a high level of non-production assets/COGS in the top quintile relative to industry peers OR an unusually fast build-up of non-production assets/COGS over one year.

• 1 point if dividends are less than 30% of profit: If a company is generating fake cash flows, it is unlikely to be able to pay much of a dividend. As discussed above, pure fake cash flow frauds find it difficult to pay dividends because the cash doesn’t exist. Indeed, 92% of our fraud sample had a dividend pay-out ratio below 30%, and 71% paid no dividends at all.

• 1 point for fraud like characteristics: If a company scores two or more of the following: an obscure auditor; a different country of incorporation to domicile; short term debt is more than 75% of total debt; operates in a high risk sector prone to fraud. Around 94% of our fraud sample triggers two or more of these four criteria compared to just 32% of companies globally.

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Mar 23Author

Thanks I will check it out. This is a good one as well by Michael Fritzell:


And I provided a check list I use on Hong Kong stocks here:


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Do you know YRD? Same sector of Lufax. Low leverage on credit (lowest on sector), 25% ROE, revenue growing 15% in 2024 (company's guidance), US$ 350 MM Profit 2024 (my number), 0,3x P/B 2024 , US$ 400MM.. Could be a tenbagger

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Mar 26Author

Lack of capital returns is concerning though. And no way to know if it isn't a fraud. I am especially sensitive to that with financial businesses.

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