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Making Heads And Tails Of ChineseInvestors (CIIX)

I somehow picked up a one-page, two-sided flyer for ChineseInvestors, a.k.a. ChineseFN.  I am reluctant to link to their website because my browser froze when I loaded their page.  I take that as a bad omen.  I had better luck examining their ticker CIIX at Yahoo Finance.  It turns out I didn't need the luck, or the knowledge.

ChineseInvestors intends to be a web portal for middle class Chinese investors seeking investment opportunities outside of China.  Addressing the legal specifics of how Chinese citizens can move their money outside the People's Republic of China is beyond the scope of a financial blog.  Chinese elites have no difficulty deploying money into California real estate and other hedges against economic annihilation at home.  Elites can easily grease any wheels needed inside their country to get cash out.  China's middle class will not have such an easy time given Beijing's need to artificially prop its stock market.

The Chinese government has imposed severe restrictions on domestic investors after the country's equity market lost over a third of its value this year.  Highly leveraged middle class Chinese are not able to liquidate their Chinese stocks.  Anyone counting on average nouveau riche Chinese to deploy capital from low-interest savings accounts or heavily margined stock brokerage accounts is at least two months too late into a new reality of capital controls.

Even if ordinary Chinese investors could count on easily moving capital, there is no reason to believe ChineseInvestors is successfully positioned to exploit such movement based on its present finances.  I reviewed the company's unaudited 10-Q dated April 14, 2015.  They had less than US$688K in cash on hand as of Feb. 28, 2015.  That is enough to cover their negative net income of over $448K that quarter, but it does not make up for an unrealized loss on available investment of almost $1.5M.  The company's burn rate indicates it must continually raise new capital.  That is a really crummy way to run a business.  It's even crummier given the accumulated deficit of $9.7M, with no turnaround in sight.

It should go without saying that ChineseInvestors does not belong in my own portfolio.  I came off the China bull story years ago.  Every public report of falsified government statistics and emergency stimulus measures from that country confirms that I made the right decision.  Chinese citizens are stuck with a bad hand.

Full disclosure:  No position in CIIX at this time.