Why the extraordinary Next Digital share price surge after Apple Daily’s Jimmy Lai was arrested?
- The market narratives surrounding the move have been confused, implausible and unconvincing. Rumours of pro-democrat or American support make no sense, given the numbers. Could it be a surge of mainland money in anticipation of a TikTok-style sell-off?
Police Academy, the slapstick film, has a scene with a police officer sitting in a car on patrol, throwing a half-eaten apple core out of his window. It hits a bystander on the back of the head. The bystander immediately turns around and thumps the guy next to him, who in turn belts somebody else. The final scene is of the two officers in their car, oblivious to the riot behind them and the city in flames.
It reminds me of the famous mathematician and meteorologist, Edward Lorenz, who pioneered modern weather forecasting and, with it, modern chaos theory. He saw that a fractional change in the inputs into his weather models, could (virtually) create a catastrophe elsewhere in the world. He titled his 1972 paper, “Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?”
There is a great visual image of chaos theory on the Wikipedia site. Chaos theory is not randomised carnage but a form of confused order; non-linear bounded instability. This means, roughly, that we know something is going to happen and how it will turn out; for example, that it is going to be warm in summer, or the typhoon season.
But what makes all the difference is where or when. Lorenz described it as, “when the present determines the future, but the approximate present does not approximately determine the future”. That is a marvellous description of the stock market in which forecasting is nowhere near the heady accuracy of predicting the weather.
A 52-week share price range of between 8 and 35 Hong Kong cents would seem fair. Then the boss gets arrested and the share, Next Digital, rose 12 times in two days, from 9 cents to 110 cents, peaking at 196 cents. The company’s market value rose to HK$2.9 billion (US$374 million) from HK$230 million.