String of Hong Kong small cap stocks plunge, wiping out HK$42b in value

Sixteen firms tumbled by more than 40 per cent as of 2.46pm, losing a combined HK$42 billion (S$7.46 billion) in market value.
Sixteen firms tumbled by more than 40 per cent as of 2.46pm, losing a combined HK$42 billion (S$7.46 billion) in market value. PHOTO: AFP

SHANGHAI/HONG KONG (BLOOMBERG) - A string of Hong Kong stocks suddenly plunged on Tuesday (June 27), with traders pointing to links between some of the companies and a brokerage that's under regulatory investigation.

Sixteen firms tumbled by more than 40 per cent as of 2.46pm, losing a combined HK$42 billion (S$7.46 billion) in market value. China Jicheng Holdings, an umbrella maker, and GreaterChina Professional Services sank more 90 per cent. Lerado Financial Group, whose shares were halted by Hong Kong's securities regulator this month, has previously disclosed an investment in China Jicheng and an underwriter role on a GreaterChina share placement in 2015.

The Securities & Futures Commission suspended trading in Lerado's shares from June 6, saying a company circular dated Oct 26, 2015 included "materially false, incomplete or misleading information."

In that 2015 document, Lerado outlined plans to raise money to expand the margin lending business of unit Black Marble, and said that Black Marble - which was formerly called Yim Cheong Share Broking and Investment Co - was planning to underwrite a placement for GreaterChina Professional and an open offer for China Investment & Finance Group. China Investment fell as much as 94 per cent on Tuesday before paring losses to 49 per cent.

Lerado owned almost 1.5 billion shares in China Jicheng as of Dec 31, according to its annual report.

The SFC and Hong Kong Exchanges & Clearing Ltd didn't immediately respond to requests for comment. Calls to Lerado and GreaterChina Professional weren't answered. The person who answered the phone at China Jicheng said they weren't aware of the share price decline and couldn't comment, while at China Investment & Finance, a separate person said they'll respond to questions after a staff meeting.

Lerado said in a June 7 filing that the company is carrying on with its business and doesn't expect the share suspension to have a material adverse effect on its daily operations.

The broader Hong Kong market was resilient to the declines on Tuesday, with the benchmark Hang Seng Index losing 0.2 per cent and the Hang Seng Composite Small Cap Index sliding 0.7 per cent. Still, the picture looked more grim on the city's small-cap Growth Enterprise Market, which is home to some of the plunging shares.

The S&P/HKEX GEM Index sank 9.4 per cent, heading for the biggest retreat since August 2015 and the lowest close on record. The gauge has lost more than 90 per cent since 2000.

The GEM board has been so beset by scandals that Hong Kong Exchanges' chief executive officer warned in February it was damaging Hong Kong's reputation as a financial center. HKEX proposed sweeping changes to GEM this month, including higher minimum market-value requirements and tighter rules on when controlling shareholders can sell their stakes.