A wine supplier to a Michelin starred Hong Kong restaurant famous for its roast suckling pig saw its share price explode with more force than a popped bottle of vintage Krug earlier this month amid a recent pattern of fizzy listings that are making giddy investors cheer and swoon in equal measure. The excitement is taking place in a niche section of Hong Kong’s second board, the Growth Enterprise Market. Here, small and mid sized firms can opt for what’s called a placement listing that allows companies to raise small chunks of capital without the cost and time involved in a formal initial public offering. And as the GEM board website tagline reads, “A ‘Buyers Beware’ Market for Informed Investors”, the trade is not without caveats. “Most analysts and institutional investors will not invest in placement listings but some retail investors will like to try their luck. Myself I strongly advise against it as whether you can make a profit on the first day of trading is a big question mark,” Tung Shing Securities equities analyst Ivan Li cautioned. Take the case of Madison Wine. A Cayman Island registered company with a single retail shop along the Wanchai section of Gloucester Road and a sales contract with upmarket Cantonese restaurant Fook Lam Moon; Madison Wine reported net profits of HK$14.2 million for the financial year ending March, according a listing document, and the firm went on to issue 100 million shares at HK 75 cents each earlier this month. By the end of trading on the first day those shares had run up a storm closing 826 per cent above the listing price at HK6.20. Ten days later and the shares had surged to HK$9, a 1200 per cent gain from the original listing price. The shares have since moderated somewhat, finishing at HK$8.87 on Monday. Madison Wine spokeswoman Grace Lai said the firm did not know who was trading the shares. One answer to this mind blowing return may lie with the firm’s original book building effort. 94.6 per cent of Madison Wine’s free float shares were held by just 25 investors, a stock exchange filing revealed the day before trading commenced. Such a concentration of shares is both a warning and a welcome sign to investors on the look out for thinly traded stocks with nail biting volatility. Daily turnover since trading started has averaged 2.11 million shares, representing just a tiny fraction of the 100 million shares issued earlier this month. The concentrated shareholdings and dramatic rise in stock prices concerns some observers. “Obviously investors are not trading on fundamentals but it is very hard for an outsider to show that there is manipulation rather than speculation,” says Hong Kong shareholder activist David Webb. Since August, seven firms raising a combined HK$430 million had 90 per cent or more of their shares held by the top 25 investors, earning then a share concentration warning from Webb, issued via his market watchdog site, www.webb-site.com . All went on to experience roller-coaster share price movements. One of these was radio and baby monitor manufacturer On Real International. The top 25 shareholders snapped up 94.18 per cent of the 120 million shares issued late September at HK 57 cents each. At Monday’s closing bell those shares were at HK$8.20, a 14 fold increase, with average daily trading volume standing at just 136,666 shares. The returns are not always so promising. Architectural and construction firm FDB raised HK$77 million last month after a placement issue of 308 million shares at 25 cents each. The shares quickly climbed to HK$ 2.1 each before plummeting back to 35.5 cents on Monday. On Real and FDB did not respond to requests for comment. FDB has issued two ‘unusual price and trading’ warnings to the exchange stating it did not know why prices were moving erratically. According to listing rules placement investors should be “independent from and not connected” with the listed firm’s directors, CEO or existing major shareholders. But this can be hard to police says Li who believes placement investors are often friends of insiders. However, Webb says historical convictions for abusing these rules are few and one cannot assume there is wrongdoing in every listing. “I don’t think we need to somehow stamp out this kind of listing. I just think we need to understand it and then if people want to gamble in the movement in the stock prices at fantastic valuations then that is just one outlet for their gambling alongside the Mark Six (lottery) and the horses,” he said.