About Chinese Penny Stocks
Chinese penny stocks are hot. China is now experiencing the same growth that the United States did at the turn of the 20th century, but on a much larger scale. As a result, some sectors of the Chinese economy are looking like a smart investment in the short term.
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What is a penny stock?
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A penny stock refers to a stock in a company whose value is below $5 per share and one where the stock that is being traded does not have a value that exceeds $4 million in total. Primarily, penny stocks are issued for small or new companies. They are listed on what is referred to as "pink sheets." Any and all public information pertaining to companies where penny stock is issued should be listed on these sheets in detail.
Understand the market
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Before investing in Chinese penny stocks, it is important to understand the market. Most penny stocks that are traded are done on what is called the "over-the-counter-market," or the OTC. You can use a full-service broker or an online discount broker, depending on what you already know or how much assistance you need to get started.
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Risky business
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Many investors agree that investing in penny stocks can be risky. However, it can also provide a great return on investment because of the higher risk component.
Beware of reverse mergers
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Beware of what is referred to as a reverse merger. This refers to a method where a private operating company arranges for its stock to be publicly traded following a merger or similar transaction with another company called a "shell company." The equity owners of the private company typically take control of the former shell company. These reverse mergers allow for a stock to trade for a short period of time before having to file certain information about the company's financial status and performance within the guidelines set up by their regulating agency. Make sure you do your due diligence before trading in any penny stock in China.
Finding Chinese Penny Stocks
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A good source to start with is the Web. Some sites will provide a comprehensive list of China stocks. For example, Pennymarkets.com manages millions of pennies, worldwide. The URL is listed below. Also, an online broker such as eTrade or Scott Trade can help.
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