In India and China, Scandals Blunt Investor Confidence: CEO Daily

August 1, 2019, 10:55 AM UTC

Good morning. It’s Jeremy Kahn here, filling in for Alan.

While many investors were fixated on the U.S. Federal Reserve yesterday, emerging market investors had two different accounting scandals to contemplate. In India, business commentators were riveted by the apparent suicide of V.G. Siddhartha. He’d built the enormously successful Coffee Day chain, but he was apparently under pressure from Indian tax investigators, according to The New York Times. The case is being seen as a parable for much of what ails India’s tax system: a Rube Goldberg complex that is unable to get the wealthy to pay their fair share despite occasionally resorting to extortionate tactics, while often encouraging corruption and having the undesirable side effect of scaring away foreign investment.

In China, markets continue to be roiled by an investigation into Ruihua Certified Public Accountants, one of Chinese biggest auditors, according to Wednesday’s Financial Times. China’s securities regulator began probing the firm after it missed billions of dollars of overstated profits on the books of a company it audited. Now the regulator has suspended planned IPOs for some 20 other Ruihua clients, while another 50 have voluntarily halted IPOs or fundraising. The damage has even impacted the new tech-focused Star Market and many investors and analysts are comparing the situation to Arthur Andersen’s collapse in the U.S. in 2002.

The “Ruihua Incident,” comes as China is trying to attract more foreign investment into the country’s domestic stock markets. MSCI has recently increased the allocation of domestically-listed Chinese stocks in its flagship emerging markets index, a move that is forecast to bring in an additional $100 billion in capital. The accounting scandals will no doubt make those foreign investors mighty nervous. But the story could be read as good news—it shows the government is willing to do what it takes to clean up the market, even if it involves short-term pain, rather than turn a blind eye to the problem.

More news below, and for more analysis and background on the Fed’s decision to cut rates for the first time since 2008, read this story by Fortune’s Erik Sherman and watch this excellent short video from Fortune senior editor-at-large Shawn Tully.

Jeremy Kahn



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This edition of CEO Daily was edited by Katherine Dunn. Find previous editions here, and sign up for other Fortune newsletters here.

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