Haidilao goes from stock hero to villain as Hang Seng baptism puts investors in hot soup

Haidilao has slumped 26 per cent since March 15 when it was added as a benchmark constituent along with Alibaba Health and Longfor Properties

Earnings revisions among index members have been soft over the past quarter, and new large-cap constituents have a lot to blame: Jefferies

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The entrance to a Haidilao outlet in Hong Kong. Photo: Reuters

Published: 2:33pm, 30 Jun 2021Updated: 10:46pm, 30 Jun 2021

The recent batch of new Hang Seng Index members have flattered to deceive investors as they tumbled hard and fast. None, however, is more alarming than the calamitous slump in Haidilao International.

The popular Chinese hotpot restaurant chain has crashed 26 per cent since March 15 when compiler Hang Seng Indexes Company added the stock to the benchmark. That has cost investors US$8.9 billion in market value, and wiped out US$6.1 billion from the net worth of its billionaire founders Zhang Yong and Shu Ping.

Two other debutants on the same day, Alibaba Health Information and Longfor Properties, have lost 27 per cent and 9.6 per cent respectively, while the Hang Seng Index was almost unchanged in the same period.

The losses offer a cautionary tale for investors who deem an index membership a gold standard in investing. While passive funds track stocks and their index weightings, other investors are more exposed to price swings due to changes in operating and economic conditions.

In Haidilao’s case, the stock has seen at least three earnings downgrades over the past three months as new store openings failed to bring in projected numbers of customers because of Covid-19 infections and the emergence of the new infectious Delta strain.