The Hang Seng Index lost more than 1,000 points in two days this week as a result of panic selling caused by the European debt crisis. The stock market remains jittery as uncertainty lingers. There is, however, another bothersome fact lurking around. That is the problem arising from the calculated sell off of mainland non-State-owned enterprise (NSOE) shares.

These sell offs are orchestrated by market manipulators disguised as "independent market research agencies". The latest development in this corner saw a leading ratings agency join the dirt-digging fanfare targeting Chinese mainland NSOEs that have been backdoor-listed overseas.

There is no arguing that NSOEs must meet the high standards of overseas stock markets if they want to be listed there, but many of the damaging reports about listed mainland NSOEs are not just about exposing their "ills". Some of those "independent research institutes" admitted openly they had sold off their entire holdings of mainland NSOEs before publishing their "revealing" findings. The findings are questionable in terms of sincerity and accuracy. Therefore, the market regulator should examine carefully such research papers for evidence of market manipulation against fair-play rules.

Some market watchers commented that it is not unheard of that some mainland NSOEs have not been completely honest about their accounting. The situation is not really getting worse as some people have suggested. The problem became prominent simply because of a sudden flare of negative publicity triggered by some openly-manipulative investors disguised as researchers.

Some funds focused on long-term investments and on institutional investors began hiring independent market research firms to acquire objective knowledge of listed mainland NSOEs. The aim of these investors was to avoid dependence on investment banks that may have vested interests in those NSOEs.

According to The Wall Street Journal, profiting from exposure of mainland NSOEs' dirty laundry has become a bona fide market operation for some self-proclaimed independent researchers, who often go out of their way to find such NSOEs and make calculated sell offs before releasing their reports.

This is a translation excerpted from a Ming Pao editorial published on July 13

(HK Edition 07/14/2011 page3)