China regulators cracking down on gains from reverse mergers

Hong Kong

ONE of China's most unusual, and lucrative, investment strategies is coming under fire as policy-makers crack down on a stock-market anomaly that they helped create.

The strategy's simplicity - and effectiveness in exploiting the unintended consequences of state meddling in markets - has for years made it irresistible to China's individual investors, even as it elicited scorn from disciples of fundamental analysis.

Executing the trade is easy: just buy into companies with the smallest market values, regardless of their business prospects, and h…