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Investors shun GSI

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sink_2 October 27, 2011 (Chinavestor) Chinese iron and steel companies SURGED in Hong Kong today on earnings and as outlook for economic recovery sweetened. Maanshan Iron & Steel (HKG:0323), one of China's leading iron manufacturers, surged 20.9%, the most among any component of the Hang Seng Index (INDEXHANGSENG:.HSI). Angang Steel (HKG:0347) was third best component of the index thanks to a 13.4% advance. Yet General Steel (NYSE:GSI), a Chinese re-bar maker, is up a mere 2.4% after 30 minutes of trading on the NYSE today. What's wrong with the picture?

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Lack of momentum for General Steel (NYSE:GSI) is even more striking considering that profitability for the sector is on the rise. Maanshan Iron & Steel HKG:0323) reported a five fold increase in profits on October 20th! No wonder the stock has been on fire ever since!

Yet General Steel (NYSE:GSI) is behind other resource and related stocks today. Aluminum Corp. of China (NYSE:ACH) is up 12.2% this morning.

The problem is that General Steel (NYSE:GSI) is a "reverse merger stock", a category that's been plagued with financial wrongdoings. The company is supposedly well positioned to take advantage of construction growth in China's second and third tier cities - but investors find it hard to believe as other companies abused the trust of U.S. investors in the past. Even good earnings may no be enough to life shares of the company significantly. Trust is key when it comes to Chinese stocks. Small cap, reverse merger stocks are finding out what it means when investors shun them.



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