[HONG KONG] Hong Kong's best-performing stocks this year are tumbling even faster than they rallied.
Goldin Financial Holdings Ltd. and Goldin Properties Holdings Ltd, controlled by billionaire Pan Sutong, plunged more than 60 per cent in Hong Kong trading Thursday. There was no immediate explanation for the drop. Before the rout, the two stocks surged more than 300 per cent in 2015 for the biggest gains on the Hang Seng Composite Index.
The tumble follows the mysterious 47 per cent plunge in 24 minutes by Hanergy Thin Film Power Group Ltd on Wednesday, which erased US$19 billion in market value before trading was suspended. The companies have other similarities. Hanergy is also controlled by single billionaire owner - Li Hejun. Almost no analysts tracked Goldin Financial or Hanergy even as their market values swelled to more than US$30 billion, making them among Hong Kong's biggest listed companies, while doubts over the sustainability of the rallies increased.
"It's a contagion effect," said Nick Cheng, chief derivatives trader at Liquid Capital Markets Ltd in Hong Kong. Investors "are now rushing to take profit and everyone's suddenly running for the exit," he said. The volatility "will damage investor confidence with such a reputable stock exchange." Hong Kong Exchanges & Clearing Ltd spokesman Scott Sapp declined to comment on any regulatory action or individual company's stock moves. Ernest Kong, a spokesman for Hong Kong's Securities and Futures Commission, declined to comment.
Goldin Financial sank as much as 62 per cent, the most since the stock first traded in 1992, before paring its decline to 43 per cent at the close. The drop erased US$12 billion of market value. Goldin Properties slid 41 per cent to wipe out US$4.6 billion after declining 61 per cent earlier. Trading in Hanergy shares remain suspended. The Hang Seng Composite Index retreated 0.7 per cent.
The gains by the Goldin Group companies this year had enriched Pan by US$20.4 billion, the biggest increase in wealth among members of the Bloomberg Billionaires Index. Pan and 19 other shareholders controlled 98.6 per cent of Goldin Financial's shares as of March 4, according to Hong Kong's securities regulator, which warned other investors to exercise "extreme caution".
Goldin Group's businesses and operations are functioning normally and its financial position is stable, according to an e-mailed statement Thursday from iPR Ogilvy & Mather, which handles external relations for Goldin Properties and Goldin Financial. The boards of both companies are unaware of any reason for the movement in the share prices, it said.
Hanergy's parent Hanergy Holding Group Ltd. said operations are normal and there is no overdue debt. The parent hasn't used the unit's shares for derivatives trading, Hanergy Group said in a statement posted on the company's Chinese language website Thursday.
The volatility in the Chinese companies in Hong Kong underscores the risks for global investors in the nation's world-beating rally. Both Hanergy and Goldin Financial were added to FTSE's Asia Ex-Japan large-cap index in March, while MSCI Inc plans to include Goldin Properties on the MSCI China Index at the end of the month.
Before Wednesday's tumble, Hanergy had jumped 162 per cent this year for the biggest advance among more than 2,400 members on the MSCI All-Country World Index.
The two Goldin companies traded at more than 130 times reported earnings before the rout, while Hanergy had a multiple of 65. Hong Kong's benchmark Hang Seng Index is valued at 11.7 times.
"Valuations are ridiculously high," Castor Pang, the head of research at Core Pacific-Yamaichi in Hong Kong, said by phone. "The stocks surged too much and no one knows why." Goldin Financial had revenues of HK$236 million (US$30 million) for the six months ended December. The company has a wine trading business, which includes vineyards in California and France, and also does factoring - buying the accounts receivables of other companies at a discount. More than 99 per cent of its net income for the period came from an increase in fair value of a 27-story office tower being constructed in Hong Kong's Kowloon Bay district, its sole property holding.
Goldin Properties is developing a US$10 billion, 89-hectare (220-acre) parcel of land in Tianjin in northeastern China, including a 117-story office tower, luxury villas, and a polo field.
More than 60 per cent of Hanergy's sales come from the Beijing-based parent, a solar panel and hydroelectric company. Hong Kong's SFC has been probing market manipulation in Hanergy's shares for several weeks, Reuters reported Wednesday, citing an unidentified person.
Regulators in Hong Kong should have responded proactively to "absurd levels" of stock valuations and need to strengthen monitoring for signs of market manipulation, Liquid Capital's Cheng said.