One of the most striking things about the 85 percent plunge in Huishan Dairy Holdings Co.’s stock on Friday was how little it surprised market observers in Hong Kong.
The mysterious crash, the indefinite trading halt, the hours without a company statement explaining the move — it was all too familiar for traders who’ve had to navigate at least three similar episodes in the past two years.
While the city is upfront about its buyer-beware approach to regulation, the frequent sight of multi-billion dollar stocks collapsing in minutes has deterred investors and raised questions about Hong Kong’s role as one of Asia’s premier trading hubs. It’s one reason why the city’s benchmark Hang Seng Index commands by far the lowest valuation among counterparts in the world’s 10 largest markets.
“There are regulatory discounts to the price-earnings multiple,” said Niklas Hageback, a Hong Kong-based money manager who helps oversee about $180 million at Valkyria Kapital Ltd. “Valuation is lagging and this has become a market-wide problem.”
The Hang Seng index trades for about 13 times reported earnings, versus 22 for the MSCI World Index.
Hang Fat Ginseng Holdings Co., Hanergy Thin Film Power Group Ltd. and Tech Pro Technology Development Ltd. have all suffered crashes similar to Huishan’s in the past two years. Tech Pro, a provider of LED lighting products, fell 86 percent in 17 minutes in July, while Hang Fat Ginseng plunged 91 percent in an hour in January 2016. Eight months before that, solar panel manufacturer Hanergy dropped 47 percent, wiping out $19 billion of market value in 24 minutes.
Huishan’s slump took less than 90 minutes. About 779 million shares in the company changed hands, the most during the morning session on Hong Kong’s exchange, which doesn’t have daily limits on share-price swings. By the time the stock was halted at midday in Hong Kong, it had lost $4.1 billion of market value.
The Shenyang, China-based company issued a statement about two hours after the rout began, saying it suspended trading after a “significant decrease” in the shares. Huishan said it would comment further after completing an inquiry. Chairman Yang Kai said speculation that the company’s largest shareholder misappropriated 3 billion yuan ($435 million) to invest in mainland real estate was untrue, Netease reported, citing a phone interview with Yang.
Lorraine Chan, a spokeswoman for Hong Kong Exchanges & Clearing Ltd., said the bourse operator doesn’t comment on individual companies. Ernest Kong, a spokesman at the Securities and Futures Commission, declined to comment.
The fallout spread on Monday to a Chinese bank that — like Huishan Dairy — counts Champ Harvest Ltd., a company controlled by Yang, as its largest shareholder. Jilin Jiutai Rural Commercial Bank Corp. slumped as much 11 percent in Hong Kong, the most since the lender listed in January. Jiutai Bank is Huishan Dairy’s second-biggest creditor with 1.83 billion yuan of loans, Caixin reported Saturday.
By no coincidence, there was a rally in Hong Kong gold buying.
The Pinstripe and Bowler Club shares information with MF Solutions.