Shanghai-Hong Kong stock disconnect
01 June 2015 London
Image: Shutterstock
Companies’ shares that rallied in the past year, particularly those rising ahead of underlying fundamentals, are coming under increased scrutiny following dramatic collapses in certain Hong Kong stocks.
With over $36 billion in paper losses across just three single names in Hong Kong, the roller coaster for investors is set to continue.
Shares in Hanergy Thin Film Power Group (HTF) increased by 1,389 percent between May 2013 and 19 May 2015. The shares then plunged 47 percent in the last week before trading was halted, wiping out $18.6 billion from Hanergy’s market cap.
The group showed relatively low levels of shares outstanding on loan, though demand to short sell remained high right up until suspension, with the cost to borrow peaking above 30 percent in April 2015.
Shares in Goldin Financial and Goldin Property also collapsed substantially, but these stocks were not suspended and were able to recover despite the company being seemingly unaware of any concrete motives for the large swings.
Goldin Financial and Goldin Property do not have high levels of shorting activity, according to Markit, though the demand to borrow remains high across the Hong Kong market.
The average sector ranks for a universe of 391 Hong Kong stocks revealed that the most expensive or in demand sectors by short sellers on average are non-cyclical goods and services (63), energy (58) and healthcare (54). These sector averages are well below the decile ranks of the individual names.
Relatively smaller in size than Hanergy but also ranking in the tenth decile is Haitong Securities, which provides financial services including securities brokerage. The firm’s share price has risen by 122 percent in the last 12 months.
Reported sales and earnings have also dramatically increased during this period, indicative of increased trading activity in the region. These underlying factors may explain the share price movement in Haitong, which some other names in the region fundamentally lack.
Analyst at Markit, Relte Schutte, explained: “The irrational exuberance of investors [has] been previously been explained by expectations of fiscal stimulus and monetary easing as economic growth slowed, but investors and companies themselves are at ends to explain the continued growth.”
Price collapse in such large stocks has regulators duly concerned, as reduced values not only impact single name investors but also global exchange-traded funds investors.
The opening of the Shanghai-Hong Kong connect in November 2014 aimed to bridge the divide between two distinct investor pools and increase liquidity.
Some commenters have observed that this has instead just opened markets to retail investors who are opening a record amount of trading accounts and trading on margin.
With over $36 billion in paper losses across just three single names in Hong Kong, the roller coaster for investors is set to continue.
Shares in Hanergy Thin Film Power Group (HTF) increased by 1,389 percent between May 2013 and 19 May 2015. The shares then plunged 47 percent in the last week before trading was halted, wiping out $18.6 billion from Hanergy’s market cap.
The group showed relatively low levels of shares outstanding on loan, though demand to short sell remained high right up until suspension, with the cost to borrow peaking above 30 percent in April 2015.
Shares in Goldin Financial and Goldin Property also collapsed substantially, but these stocks were not suspended and were able to recover despite the company being seemingly unaware of any concrete motives for the large swings.
Goldin Financial and Goldin Property do not have high levels of shorting activity, according to Markit, though the demand to borrow remains high across the Hong Kong market.
The average sector ranks for a universe of 391 Hong Kong stocks revealed that the most expensive or in demand sectors by short sellers on average are non-cyclical goods and services (63), energy (58) and healthcare (54). These sector averages are well below the decile ranks of the individual names.
Relatively smaller in size than Hanergy but also ranking in the tenth decile is Haitong Securities, which provides financial services including securities brokerage. The firm’s share price has risen by 122 percent in the last 12 months.
Reported sales and earnings have also dramatically increased during this period, indicative of increased trading activity in the region. These underlying factors may explain the share price movement in Haitong, which some other names in the region fundamentally lack.
Analyst at Markit, Relte Schutte, explained: “The irrational exuberance of investors [has] been previously been explained by expectations of fiscal stimulus and monetary easing as economic growth slowed, but investors and companies themselves are at ends to explain the continued growth.”
Price collapse in such large stocks has regulators duly concerned, as reduced values not only impact single name investors but also global exchange-traded funds investors.
The opening of the Shanghai-Hong Kong connect in November 2014 aimed to bridge the divide between two distinct investor pools and increase liquidity.
Some commenters have observed that this has instead just opened markets to retail investors who are opening a record amount of trading accounts and trading on margin.
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