What’s in a name? Everything, when it comes to China’s stock market
You could be forgiven for assuming that a company with a name like Shanghai P2P Financial Information Service might be in the business of, well, peer-to-peer financial information services.
But names can be misleading, particularly when it comes to the Chinese stock market.
The company, according to public documents, has in fact conducted no financial information business, P2P or otherwise, since changing its name from Shanghai Duolun Industry in May 2015.
Duolun Industry, a commercial real estate development and services firm, said at the time it was diversifying into online financial services and financial software development businesses.
The name change on May 11, 2015 led to a 94 per cent rally in the share price in less than a month, from 12.06 yuan (US$1.80) to 23.4 yuan on June 11 that year.
On Monday, the unprofitable Shanghai-listed firm said that changing its name had been a mistake – one that it admits contributed to “irregular price fluctuations” on the bourse.
The company said in an exchange filing that it would now rectify the wrongdoing, changing its misleading name to Shanghai Yanshi Industry, subject to the exchange’s approval.
“The incumbent board realised that the name represents not just a label for the listed firm,” the company said in the filing. “The name could have an impact on investors’ decision-making as they assess the company’s valuation.”
He Yan, a hedge fund manager at Shanghai Shiva Investment, said: “Investors were convinced of a drastic change in the company’s fundamentals after the name change, betting that a diversification into P2P could breathe new fire into the businesses.
“It was ridiculous but scenes like that often happened in this market.”
In late March this year Xian Yan, the former chairman of Duolun Industry, was handed a lifelong ban from trading securities by the China Securities Regulatory Commission (CSRC) for stock market manipulation. He was fined a record 3.47 billion yuan for his transgressions in the mainland market.
A Shanghai stock exchange official said the company’s efforts on Monday to make amends by changing its name again was nowhere near enough to solve its fundamental problems. The bourse is still urging it to clarify what Yanshi Industry’s core businesses would be.
P2P refers to peer-to-peer lending, under which an online financial service provider acts as a matchmaker for borrowers and lenders while collecting service fees from each transaction.
Two years ago, P2P was touted as a game-changer in the mainland’s banking sector as it helped offer loans to millions of people who couldn’t get one through more traditional channels. echoing the Chinese leadership’s efforts to reform a financial system geared towards state-owned businesses.
However, a raft of scandals involving fraud and misuse of funds via P2P platforms in late 2015 prompted regulators to launch a nationwide clean-up campaign to weed out unscrupulous players.
As of last Friday, shares of P2P Financial Information traded at 6.66 yuan, more than 72 per cent shy of its close of 23.4 yuan on June 11, 2015.
The company posted losses of 102 million yuan in 2015, and those losses widened to 460 million yuan the next year. It would face delisting if it were to report earnings in red ink for 2017.
On Monday, its A shares jumped by the daily trading limit of 5 per cent to 6.99 yuan before slumping 2.9 per cent to 6.79 yuan on Tuesday.
On the mainland, companies reporting losses in two straight years are subject to a 5 per cent daily trading limit.
“It is the latest example to display the characteristics of China’s casino-like stock market,” said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital. “Retail investors still appear to be moody since they believe that a name change could boost a stock’s price.”
The Shanghai exchange official said the bourse was striving to get proper and punctual information from P2P Financial Information in order to protect investors.
China’s more than 100 million individual equity investors tend to chase short-term gains on rumours regardless of economic conditions and companies’ fundamentals.
Most of them have been left to rue losses at some point in the past three decades as unethical fund managers and company bosses either used falsified earnings or published misleading asset restructuring information to entice them to buy shares, only to create easy exits for the big funds to take profits.
This sorry state of affairs reached its climax in May last year when television serial Ode to Joy, a prime-time drama that drew rave reviews on the mainland, caused frenzied buying into shares of Guizhou Redstar Developing, an unprofitable chemicals maker.
Stock punters read into the fictional storyline, taking their cue from an attempt by one of the characters to acquire a firm bearing the name of Redstar.
Shares of Guizhou Redstar soared by the 10 per cent daily upper limit for three consecutive trading days before trading was suspended due to the abnormal price jump.