Warning sign for market regulators
A single stock collapse may be an accident. A second and third sell-offs in just two days are eerily worrying. Yet, that is exactly what happened this week while the broader market has been on an upswing.
On Thursday, the shares of both Goldin Properties Holdings and Goldin Financial Holdings owned by mainland tycoon Pan Sutong plunged more than 50 per cent. This followed a similarly deep plunge the day before in the shares of China's largest solar company, Hanergy, by market capitalisation.
At a time when mainland money is flooding the local stock market thanks to the stock connect between the city and Shanghai, the price collapses of those companies which have long worried some analysts should be a warning sign for regulators to be especially vigilant.
The products and services of those three companies cannot be more different, but all three shared the same meteoric rise in share prices over the past year. The Goldin conglomerate specialises in horse-breeding, wine and finance while Hanergy sells solar thin-film panels, an alternative and cheaper technology to traditional solar panels. The share rises in all three cases were seemingly triggered by no obvious catalysts. But it made Hanergy's major shareholder Li Hejun the nation's richest man until the stock correction this week.
Analysts have long fretted that Hanergy made most of its money through related transactions with parent Hanergy Holding Group. Others have noted the concentrated holdings in Goldin: Pan held 70.29 per cent of Goldin Financial, while 19 other shareholders held 28.29 per cent.
As Hong Kong stock exchange chief Charles Li Xiaojia has said, investment quotas for the Shanghai-Hong Kong Stock Connect scheme will increase soon to boost turnover; more and more investors will use the scheme.
The influx of money from the north is likely to cause more mainland companies listed in Hong Kong and penny stocks to experience wilder swings. But local punters are traditionally more prudent than their mainland counterparts who are more used to gambling without much regard for fundamentals.
The local stock market is not the A shares market; we need to make sure it does not become like one. Regulators on both sides of the border must step up their game and make sure companies play by the book. Instead of looking only after their own jurisdictions, they must enhance cooperation. That is the only way to protect investors on both sides.