Unusually rapid swings in certain share prices on the Hong Kong Stock Exchange (HKEx) appear more like gambling and have called into question the wisdom of the market’s recently created connection with the Shanghai Stock Exchange on the Chinese mainland, according to the Financial Times.
Price movements that wiped out about half the value of companies including Hanergy Thin Film Power, Goldin Financial and Goldin Properties this week are not backed by any news or fundamentals, reports the FT. Rather, they’re likely prompted by speculative bubbles and crashes caused by Chinese mainland investors, particularly retail investors, who have an increasing presence on the exchange.
Movements in prices such as those three stocks, which all quadrupled in price over the past six months, will likely force the HKEx to rethink its own hands-off policy and increasingly intervene in the market to stabilize share prices, the newspaper says. The exchange imposes no limit on the percentage increase or drop of a stock on any particular day, unlike most major exchanges. The Shanghai exchange, with which Hong Kong created a connection earlier this year, limits share price movements to a maximum of 10 percent on any one day.
The stock price increases at solar panel producer Hanergy Thin Film Power, Goldin Financial, a provider of short-term corporate financing, and Goldin Properties, an investment holding company, transformed the companies from essentially penny stocks to some of the largest corporations in China. The subsequent drop this week wiped out a combined $36 bn in value.
‘We have a legitimate market for real companies, then we have bubbles like Goldin and Hanergy that provide an outlet for people’s gambling instincts,’ says David Webb, a corporate governance activist in Hong Kong, in an interview with the FT. ‘There were plenty of warning signs in both cases. If anyone has been buying, it’s been a bet that a greater fool would pay more for it later.’
