Taiwan Depository Receipt

I watch with amusement that Oceanus, Yangzijiang and now China Taisan has
joined the chorus of companies listed on the local bourse to get a TDR listing in Taiwan. They do this by issuing additional shares or allow the redemption of existing shares into TDR. Typically these are companies with significant business exposure in China and reckon that their value will be greater appreciated by the Taiwanese market. In fact, TDR for Oceanus is trading at a premium over the value of the local share.

Could this lead to the floodgates being open that allows the S-Chips to head for what they think may be greener pastures. For some companies, maybe yes.

In spite of the growing importance of the Chinese economy and the higher possibility that you can find 10, 20 or even 50 baggers among these thousands of mainland companies, I think it will be wise to be extremely careful. Remember, even excellent companies in promising market niches can be screwed up by a fraudulent management. The recent commercial case against the founder of Gome (the largest electronic retailer in China) is just one of the many cases happening daily over there.

As a general rule, I tend to avoid S-chips with some rare exception. Even in doing so, I am mentally prepare to lose my investment sum, if I make the exception.

If you are investing with your retirement sum or your child education, I suggest you skip the S-chips completely.

A Taiwanese Depository Receipt (TDR) is a certificate registered in the holder's name or as a bearer security giving title to a number of shares in a non-Taiwanese based company deposited in a bank based outside Taiwan. These certificates are traded in the TSE.