Bottom line: Hanergy shares will remain forcibly suspended until the Hong Kong securities regulator completes its investigation into price manipulation, and could ultimately return to China where oversight is far less strict.
I had to smile when I read the latest reports that said the Hong Kong securities regulator has taken the unusual step of ordering a continued suspension of shares of solar power equipment maker Hanergy (HKEx: 566), as it continues a probe into stock price manipulation. My smile wasn’t due to the continued suspension, but rather to the reason that media reports gave for the investigation, namely the spectacular rise in the company’s price over a one-year period, followed by its even faster plunge. (previous post)
That story was actually quite well documented back in May, when Hanergy’s shares lost nearly half of their value in a single hour after rising 6-fold over the previous year, wiping out $19 billion in market value. China stock watchers will know that the reason for my smile is that this kind of meteoric rise and fall is quite ordinary just across the border in China, and seldom attracts similar scrutiny from the China Securities Regulatory Commission.
But of course when it comes to financial markets, China and Hong Kong are in 2 completely separate leagues. Whereas Hong Kong’s stock markets are relatively mature and get regular praise for their good oversight, China’s markets are more like a casino where shares can double or even triple in just a few weeks without any change in a company’s prospects. Such speculative buying is largely behind the huge rises in the Shanghai and Shenzhen stock exchanges over the last year, and now the equally big falls.
All that said, kudos should go to the Hong Kong Securities and Futures Commission for ordering a continued halt in Hanergy shares. (company announcement; Chinese article) Hanergy stock was suspended on May 20 at the company’s request, after it lost nearly half their value in the first hour of trading that day. This new order means that trading can’t resume until the regulator gives the green light, even if Hanergy itself wants its shares to start trading again.
The securities regulator opened an investigation into Hanergy for potential stock manipulation, and company watchers are guessing the suspension will remain until that investigation is concluded. In this case the regulator should get just a bit of criticism, since it probably should have opened its investigation earlier, perhaps when Hanergy shares had risen by 3-fold or 4-fold, instead of waiting for the price collapse.
But returning to my original point, this kind of turbo-charged speculative buying and behind-the-scenes share price manipulation is rampant in China, and has been a major factor behind the stock market’s recent volatility. Online video company LeTV (Shenzhen: 300104) is one of the few China-traded companies I follow, and is a good example of this speculative and manipulative buying.
The company’s shares were relatively stable heading into last summer, when they suddenly embarked on a rally that saw them rise more than 5-fold to an all-time high this May. Since then, however, they’ve lost about a third of their value in the broader market sell-off. An even higher-profile case is Baofeng (Shenzhen: 300431), another online video company, whose shares soared by a staggering factor of 43 after their IPO in March, before tumbling 27 percent from their high in June amid the recent sell-off. (previous post)
Hanergy must certainly be looking enviously at companies like Baofeng, which are allowed to continue trading despite the blatant share manipulation that is happening to boost their stocks so much. Of course I’m being slightly sarcastic, since such volatility really isn’t good for any stock over the longer term and probably would cause nightmares for company executives in any mature market. But Chinese entrepreneurs who simply like to see their stocks rise might not care as much about such volatility, which perhaps is one of several factors leading many US-listed Chinese companies to mount privatization drives with an aim of re-listing back at home.
Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.