A string of Hong Kong stocks suddenly plunged Tuesday, with traders pointing to links between some of the companies and a brokerage that’s under regulatory investigation.
Fifteen firms tumbled by more than 40 percent as of 3:33 p.m., losing a combined HK$46 billion ($5.9 billion) in market value. China Jicheng Holdings Ltd., an umbrella maker, and GreaterChina Professional Services Ltd. sank more 90 percent. Lerado Financial Group Co., 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.
“We’re seeing a domino effect; all the companies in the same network got cut,” said Francis Lun, the Hong Kong-based chief executive officer of Geo Securities Ltd. These shares are “owned by the same group of people so they must be experiencing a liquidity crunch and they don’t have the money to support the share prices,” he said.
The selloff, which sent the city’s Growth Enterprise Market sinking the most since 2015, is reinforcing concerns about risks in the world’s fourth-largest equity market after a series of spectacular plunges. While Hong Kong’s benchmark index is among the best performers this year, declines in companies such as China Huishan Dairy Holdings Co.”•which sank 85 percent in a single day in March”•have burnt some investors.
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 Ltd. China Investment fell as much as 94 percent Tuesday before paring losses to 53 percent.
Lerado owned almost 1.5 billion shares in China Jicheng as of Dec. 31, according to its annual report.
The SFC didn’t immediately respond to requests for comment. Hong Kong Exchanges & Clearing Ltd. said it wasn’t in a position to explain the share price declines. 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.