H shares earn thumbs down
The favourable report card given to H-share companies by stock exchange executives earlier this week has been called into question by a study released by the exchange's research department.
The study shows the broking and funds management communities have given a broad thumbs down to the regulation and enforcement regime for mainland enterprises listed in Hong Kong.
Market representatives also registered a general level of dissatisfaction with information disclosed by H-share issuers, the survey showed.
It contrasts with indications by the exchange at the weekend that disclosure by H-share companies and their compliance with listing rules were satisfactory.
The exchange made its positive report after a review of interim results released by 21 H-share companies.
Exchange officials said many of the companies had adopted its recommendations and disclosed additional information in their results.
The research study's most worrying aspect was an alarming level of dissatisfaction with disclosure of information by H-share issuers.
About 43 per cent of brokers - and a massive 80 per cent of fund managers - believed disclosure was inadequate.
No fund managers, and just 6 per cent of brokers, believed the disclosure by H-share issuers was adequate.
The research found that 26 per cent of brokers and exactly a quarter of fund managers surveyed believed regulations governing H-share issuers were inadequate. The percentage of those who believed disclosures were adequate was lower.
The study was similarly negative on whether regulations governing H-share issuers were enforced effectively.
Only 19 per cent of brokers and 10 per cent of fund managers saw enforcement as adequate, compared with 27 per cent of brokers and 25 per cent of fund managers who regarded it as inadequate.
Exchange officials yesterday appeared to distance the results of the study from their statements on H-share companies.
They said the statements related largely to compliance with international accounting standards, while the study dealt with companies' general disclosure of information.
A number of market sources believe there is room for improvement in H-share company disclosures.
W.I. Carr managing director John Mulcahy said it was 'quite difficult to see behind H-share companies at times' in order to assess the quality of their assets.
He said this was not the fault of the exchange, but rather a problem created by the artificial selection process to determine which companies were selected by mainland regulatory authorities to become H-share stocks.
There was a need for this selection process to become more open, he said.