The Innovest Ratings of Chinese Organizations

Abstract

We selected performance relationships of 14 Chinese companies listed on the Hong Kong and Shanghai Stock Exchange s and compared them to three benchmarked comparison groups, all of which were rated by Innovest iRatings. Twelve of 14 Chinese organizations were given the lowest Innovest rating that would usually constitute a clear “Sell/Do Not Buy” market signal. These Chinese companies were compared to industry- and size-matched non-Chinese firms which were organised into three category groupings: top-, average-, and low-ranked based upon their Innovest iRatings. We compared the Chinese organizations to these three benchmarked groups on the following three measures: the firm’s period beta (β) from the one-factor capital asset pricing model (CAPM), market capitalization (MCAP), and net operating income (NOI). We found no support for the low ratings given to the Chinese companies by Innovest, in that the performance profiles of these Chinese firms on MCAP and NOI were not statistically significantly different from any of the benchmarked firm groupings. Further, with respect to β, we found strong support for upside and downside--that is, symmetric volatility, counter to the downside and limited-upside volatility suggested by the low Innovest iRatings ratings.