HONG KONG - Shares of Noble Group, a Singapore-listed commodities trader, sank the most in three years on Monday. Sound Global posted a record drop, while Ozner Water International Holding lost 20 per cent.
The common factor driving all three was research reports, at least two of them by short sellers, alleging accounting irregularities. Hong Kong-based Noble and Sound Global, a Beijing-based water-treatment firm, denied the allegations. Ozner Water said it's preparing a detailed response to "unfounded" speculation against the company.
The declines, which wiped out more than US$1 billion of market value as trading slowed before China's Lunar New Year holidays, underscore investor skittishness about the reporting practices of Chinese and Hong Kong companies almost four years after Muddy Waters put a spotlight on the issue with its 2011 report on overstated timberland holdings at Sino-Forest Corp.
"In the face of uncertainty, investors would sell first," said Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management, which oversees about US$112 billion. "It's a normal human reaction."
Noble dropped 7.9 per cent in Singapore trading, with the firm's market value shrinking to the equivalent of US$5.5 billion. The company "completely rejects the allegations," it said in a statement on Monday.
Iceberg Research issued a report dated Feb. 15 questioning Noble's accounting practices. The website of Iceberg Research contains no analyst names, phone numbers or links to research notes, apart from the 17-page report on Noble. Iceberg said it doesn't have any position in Noble's securities and doesn't work in tandem with funds.
The research firm is "flying under the radar," said Carey Wong, a Singapore-based analyst at Oversea-Chinese Banking Corp., which is reviewing its buy rating on Noble. "We will take a second look at some of the allegations and we need to convince ourselves."
Sound Global sank 29 per cent in Hong Kong, leaving it with a market value of US$1.05 billion. Shares resumed trading for the first time since it was accused by Emerson Analytics Co. of exaggerating revenue on Feb. 4.
Sound Global published a response to Emerson on Feb. 13, saying the report is "seriously misleading, groundless and full of hyperboles and logic flaws." The water treatment company also said it may start a share-buyback program and Chairman Wen Yibo may increase his stake through market purchases.
No individual analysts at Emerson Analytics were identified in the Sound Global report, which says Emerson and its associates may have short positions. The group's website provides no phone numbers or contact information with the exception of a Gmail e-mail address.
Ozner shares closed at the lowest level since the company's June listing, leaving the maker of water purifiers valued at about US$594 million.
The report on Ozner "contains errors of fact, misleading statements and unfounded speculations against the company," it said in a statement to Hong Kong's stock exchange on Monday.
"The company is currently preparing an announcement with detailed responses to the allegations therein and to refute the attempt to undermine the confidence in the business and financial condition of the company."
Glaucus Research Group issued a "strong sell" recommendation on Ozner in a report Monday. The research firm said it has a short position in Ozner and stands to profit if the stock declines. Glaucus spends hundreds of hours analyzing publicly available information to build investment ideas, Soren Aandahl, the firm's director of research, said in an e-mailed response to questions on Feb. 6.