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Investors Lose Their Marbles as MSCI U-Turn Spurs 98% Stock Plunge

After a near 40-fold increase this year, Hong Kong-listed ArtGo was on the verge of inclusion in influential indexes

By 

Xie Yu

Updated Nov. 21, 2019 11:41 pm ET

A marble-mining stock crashed 98% Thursday morning, shedding $5.7 billion of market value, after MSCI Inc. dropped plans to add the Hong Kong-listed company to its indexes.

ArtGo Holdings Ltd. ’s implosion is the latest in a series of boom-and-bust episodes involving smaller listed Hong Kong stocks. It came a day after The Wall Street Journal published a column highlighting the shares’ nearly 40-fold increase in 2019.

Two weeks ago, New York-based MSCI said it planned to include ArtGo in its MSCI China Index. But on Wednesday, the index compiler reversed course, saying ArtGo wouldn’t make the cut after “further analysis and feedback from market participants on investability.”

Sinking Like a StoneShares in Hong Kong-listed marble companyArtGo tumbled 98% on Thursday morning.ArtGo Holdings share priceSource: FactSetNote: HK$10=$1.28

Sept. ’19Oct.Nov.051015HK$20

In September, activist shareholder David Webb issued a “bubble warning” about ArtGo and said he had written to the Securities and Futures Commission, the city’s market regulator, calling for a probe into its ownership.

On Thursday, Mr. Webb said he was right to call it a bubble. “I believe the stock was being manipulated and was closely held, but whether the SFC can prove that remains to be seen,” he said in an email, adding that the commission hadn’t updated him on the case.

Mr. Webb also said index compilers needed to improve their selection criteria, for example by examining if extremely high valuation multiples were justified. “It is too lazy to just look at market capitalization and turnover,” he said. He said this could lead to index-tracking funds suffering if bubbles burst.

A representative for the commission had no immediate comment. A person who answered the phone at ArtGo’s Hong Kong office said the company had no comment.

In a later statement, MSCI said it had reviewed ArtGo’s suitability for inclusion after receiving comments from market participants and had “concurred with the serious concerns regarding ArtGo Holdings’ float and liquidity.”

Until Wednesday, shares in ArtGo were this year’s best-performing in Hong Kong. They tumbled 97.9% in Thursday morning trading, to 0.305 Hong Kong dollars (US$0.039), before being suspended shortly after 11 a.m.

Shares in another Hong Kong-listed small-capitalization stock, Kasen International Holdings Ltd. , also crashed on Thursday, tumbling 90% after the release of a report by a short seller, Blue Orca Capital. Kasen’s stock was also halted.

Hong Hao, managing director at Bocom International Holdings Co. Ltd. in Hong Kong, said the city’s investors were familiar with such roller coaster moves. “Local investors have seen this movie before. But international investors, less so,” he said.

Mr. Webb has also criticized MSCI for including Hong Kong-listed China Ding Yi Feng Holdings Ltd. in its indexes. The company had rallied 8,500% in five years, despite reporting annual losses from 2013 to 2017. Since March, the stock has been suspended, and Hong Kong’s securities regulator has said it is investigating the price spike.

ArtGo has reported losses for two years, and its net tangible assets as of June were $132 million. Stock filings show 20.2% of ArtGo’s shares are controlled by Wu Jing, the company’s chairman and acting chief executive officer, and her husband Leung Ka Kit, mainly through a vehicle called Maswin International (Hong Kong) Co. Ltd