Hong Kong’s GEM market ‘a failure’ as 99% slump from peak pushes small-cap stocks into viability crisis

Name: Can China learn lessons from Japan’s ‘lost 30 years’?
Uploaded: 2023-10-04T23:30:09.000Z
Duration: 16 min 50 s
Description: Can China learn lessons from Japan’s ‘lost 30 years’?

About 90 per cent of the 329 companies listed on the GEM are penny stocks, each trading below HK$1

The GEM market has not had an IPO since Grand Power Logistics was listed in January 2021; the stock has since lost 73 per cent of its value

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The Exchange Square in Central, Hong Kong in June 2023. Photo: Xiaomei Chen

Jiaxing Li

Published: 7:30am, 5 Oct 2023

Small and medium-sized companies are the live wire of the Hong Kong economy, making up 98 per cent of the businesses in the city. On the stock exchange’s Growth Enterprise Market (GEM), though, many of the penny stocks are struggling to stay relevant to investors.

The S&P/HKEX GEM Index has plunged 35 per cent this year to the lowest since it was established in November 1999. The 47-member gauge, which covers about 75 per cent of the market capitalisation, has crashed 99 per cent from its peak in January 2001, during the US dotcom meltdown.

To compound the misery, nine in 10 stocks in the GEM universe are trading at less than HK$1 per share, according to Bloomberg data. Average daily turnover was HK$129 million in August, according to stock exchange data, some 60 per cent below the average volume in 2021.

The GEM market is not performing, says Dickie Wong, executive director at Kingston Securities. Photo: Handout

“No one cares about these companies these years” after the dotcom bubble burst, said Dickie Wong, executive director at Kingston Securities in Hong Kong. “The market is just not performing. It’s a failure.”

The dire situation reflects the malaise in the broader market. China’s sluggish economic recovery and concerns about higher-for-longer rates have prompted global funds to flee. More than US$428 billion has been erased from the Hong Kong market this year as the Hang Seng Index ranked as the worst performer among major equity benchmarks.

16:50

Can China learn lessons from Japan’s ‘lost 30 years’?

Hong Kong Exchanges and Clearing (HKEX), the bourse operator, cited Covid-19 as one of reasons for the market decline. China’s move to open the Beijing Stock Exchange in November 2021 for fledgling mainland Chinese companies has lured listing candidates away from the local market, it added.

This has prompted HKEX to consider shaking up the market as its positioning and viability as an alternative to the Main Board came under scrutiny. Several listing reforms, including a new eligibility test, may be imminent as the exchange awaits feedback to a consultation paper published last month.

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