As Korea Exchange (KRX) has suspended trading of China Great's stock after auditors issued a disclaimer of opinion on the firm’s financial statements, “Chinaphobia” is spreading on the domestic stock market again. Investors still remember the shock delivered by the 11 Chinese firms that were delisted in the past due to accounting fraud.
Chinese health supplement producer CKH closed at 433 won, down 14.09 percent, on the secondary KOSDAQ market on April 19. The share price of another Chinese firm, East Asia Holdings, also plunged by 11.54 percent.
This is because doubts about Chinese companies adversely affected the two firms and investors went on selling spree. In regard to China Great, KRX said, “A Korean auditor issued a disclaimer of opinion because of scope limitation in auditing and we suspended trading of its stock as it can be delisted.” KRX has also suspended trading of East Asia Holdings stock after the company announced that it is likely to fail to meet the April 22 deadline for its 2018 audit report due to the absence of an external auditor. The company has not appointed a new external auditor until now after dismissing the existing one. KRX suspended the trading of the company’s stock until it appoints an external auditor.
Such news have raised concerns over accounting opaqueness of Chinese companies again. So far, 11 Chinese firms have been delisted from the Seoul bourse mainly due to audit problems. The stock price of the two firms also plummeted owing to the concern.
Experts pointed out that investors should not be excessively traumatized. A Chinese analyst said, “Chinese companies that had been delisted in the past differ from the ones that are listed on the bourse now. There is no need to avoid Chinese firms just because they are Chinese ones.” Some also say that excessive market distrust leads to undervaluation of Chinese companies. Organic Cosmetics has paid out cash dividends for two years in a row from last year and aggressively pursued a shareholder-friendly policy but its stock price remains low.
As investors are increasingly avoiding Chinese firms, companies which are preparing for listing are also at a loss. Currently, Bonanza Plant Pharmaceutical is undergoing screening in preparation for going public on the KRX and TBI is seeking to be listed in the second half of this year among Chinese companies. Under the current circumstances, however, it is unclear whether the two firms will be listed because it is impossible to evaluate the corporate value properly.