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Sino-Forest and the China factor Add to ...

There's a big cloud hanging over Sino-Forest Corp. right now, a day after the shares plunged 21 per cent before being halted on the Toronto Stock Exchange, pending a response from the company to allegations from an analyst and short-seller that the Chinese-based forest management company has overstated the value of its assets.

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The allegations come from one small investment firm called Muddy Waters, but other formerly bullish analysts are now weighing in with skepticism of their own. An analyst at BMO Nesbitt Burns cut his recommendation on the stock to "market perform" from "outperform" and removed his $36 price target.

The allegations against Sino-Forest seem to underscore many of the regulatory and accounting concerns that some investors have expressed over Chinese companies in recent years, even as the country's economy modernizes. So far, though, investors haven't been punishing other Chinese companies.

We did a quick scan of other Chinese companies listed in North America, and they appear to be holding up relatively well. Baidu Inc. was down 0.3 per cent, Sina Corp. was up 1.1 per cent, E-Commerce China Dangdang Inc. was down 0.6 per cent and China Fire and Security Group Inc. was down 0.7 per cent.

Meanwhile, the S&P 500 was down 0.7 per cent in mid-morning trading, while China's Shanghai stock exchange composite index rose 0.8 per cent in overnight trading.

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