Commentary on Political Economy

Thursday 21 November 2019


Investors lose billions as bubble in two HK companies bursts Marble producer wiped out on MSCI U-turn while furniture maker reels after short-seller’s report The shares of two Hong Kong-listed companies plunged in the latest examples of spectacular equity market wipeouts

Billions of dollars were wiped off the market value of two Hong Kong companies on Thursday, marking the latest examples of spectacular wipeouts in the city’s equity market. A lossmaking marble producer that had rallied 3,800 per cent this year saw its market capitalisation fall by HK$45bn(US$5.7bn) — a 98 per cent decline — after index compiler MSCI said it would not include the stock in its globally tracked benchmarks. ArtGo Holdings, which recorded a net loss of almost Rmb640m ($91m) last year, had been selected for inclusion in the MSCI China index on November 7. That prompted the company’s share price to more than double in little over a week as investors snapped up the stock ahead of its scheduled inclusion. But on Thursday, MSCI reversed its decision on ArtGo, citing “further analysis and feedback from market participants on investability”.

 David Webb, a Hong Kong-based activist investor and corporate governance expert, said in September that ArtGo’s shares were in a bubble and had written to the city’s financial regulator requesting a probe into the company’s ownership. He said on Thursday that MSCI’s “fairly mechanistic criteria” influenced its initial decision to include the stock. “They don’t apply any valuation metrics to their decisions,” Mr Webb said. “If they had, they’d have seen, as I did, that it was trading at 20 times net asset value, and that’s not sensible by any stretch of the imagination.” Dramatic booms and busts are a hallmark of Hong Kong’s stock market. In 2017, a group of locally-listed stocks shed $6bn in a series of mysterious plunges that left the worst of them down 95 per cent. The companies had earlier been singled out by Mr Webb as part of what he called an “Enigma” network in his analysis that charted the crossholdings between the businesses.

 ArtGo was not the only Hong Kong-listed company whose market value was almost obliterated on Thursday.  Recommended Peer-to-peer lending Short-seller Bonitas Research targets US-listed Chinese P2P lender Shares in Kasen International also fell by more 90 per cent, representing about $800m in market capitalisation, after the furniture maker and property developer was attacked by short-seller Blue Orca Capital. A Blue Orca research note raised concerns about certain projects being developed by Kasen in Cambodia, as well as asset disposals that had been made by the company. “Kasen’s only viable segment is property development, a melting ice cube as the company sells off the last of its remaining residential units,” the report claimed. Kasen, which halted trading, declined to immediately comment on Blue Orca’s accusations but said it would publish a response later in the day. The falls on Thursday brought the total number of sudden price collapses in Hong Kong to three for November. Shares in luxury bottled water supplier Tibet Water dropped by two-thirds in a day earlier in the month.

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