The saga of Sino-Forest continues to rivet Wall Street.

Recall that a report on behalf of short sellers caused a real stir by accusing the company of being a fraud, which tanked the stock dramatically. John Paulson, the hedge fund star, was forced to close out his long position at a $500 million loss. The same sort of dynamic--a report from an analyst of a firm selling short--has toppled other Chinese companies as well. But has this gone too far? Some investors think all this has unfairly tainted some companies and thus created some attractive valuations.

Bloomberg Business Week reports that Morgan Stanley's private equity unit is "One of at least six private equity funds wagering that accusations made by short-sellers have created bargains among U.S.-listed Chinese companies."

Since February, six buyouts of U.S.-listed Chinese companies have been announced, with a total value of $1.96 billion, according to data compiled by Bloomberg. On May 20, for example, Bain Capital agreed to buy China Fire & Security for about $234 million. And in the wake of research-driven stock swoon at Yongye, Morgan Stanley's Asian private equity unit said it would buy $50 million of preferred stock, which drove the stock up 42 percent in one day. We may see more hedge funds trickle back into these stocks at some point, though the shorts remain convinced there greater declines ahead.

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