Portfolio | China's Nexteer a model for transparency, corporate governance

Corporate governance is a buzzword for investors, not least those still stunned by last month's collapse in the share price of troubled Hong Kong-listed mainland solar company Hanergy.

A 47 per cent fall in barely an hour is a rarity in a stock market regulated to tough global standards.

That it happened - after a spectacular 246 per cent rally over the previous 12 months - is a warning to investors of what analysts at Macquarie in a new report call "structural corporate governance challenges that are virtually unique in global emerging markets" of holding stock in some mainland Chinese companies.

Of the 1,000-odd listed mainland firms in Hong Kong, Macquarie's list of companies with the most sound corporate governance standards amounts to just 80.

Top of that list is Nexteer Automotive a Hong Kong-listed steering and driveline systems producer that was acquired in 2010 by Pacific Century Motors, an investment arm of the Beijing municipal government.

"We rate Nexteer as one of the highest quality companies we cover and continue to see long-term upside," equity analysts Jake Lynch and Shannon Wu said in the report. They said the stock, which has just reached Macquarie's 12-month price target, still has over 100 per cent upside potential over the next three years.

One of the big positives for Nexteer is that it publishes details of the backlog in its order book - a level of transparency that sets it apart from many other mainland firms - allowing investors to plot the likely trajectory of earnings growth.