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Emerging-Market Investing -- How the Pros Do It

By Ben Steverman - 2011-12-09T17:28:30Z

Photograph by Stockbyte/Getty Image

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Verify, Then Trust

At a major Chinese Industrial company, Bin Xiao, an analyst at Polaris Capital Management, talked to top executives, middle managers and front-line workers. The business was valid, Xiao decided -- it was the company's numbers that were a little questionable. Especially when a company is family-controlled, managers may have incentives to lie to minority shareholders, Xiao cautions. Investors must get creative to check out sales and profit figures, for example by comparing results to competitors and watching and counting deliveries to plants. Polaris invested instead in a state-owned firm where the managers were more trustworthy and the revenues easier to verify.

Read the full special report.