Last week we reported how China First Capital Group, an investment holding company, saw its equity trading on the Hong Kong exchange crash in minutes.
The epic implosion continued into the new week, shares are down -23% on Monday as a new report from Bloomberg specifies the chairman of the company unloaded half his stake.
Exchange filing published Saturday show Wealth Max Holdings Ltd. dumped 326.57 million shares of China First Capital on Nov. 28, one day after the stock plummeted 78%.
Wealth Max is controlled by chairman Wilson Sea, who held a 16.1% stake in China First Capital as of last December.
We noted that the abrupt stock slump, wiping out billions of dollars in shareholder value, has once again put the spotlight on corporate governance of Hong Kong stocks.
The forced selling by the chairman was likely due to a margin call on a loan that had collateral as stock. This dangerous business practice can act as a domino effect when companies are connected by investors or business lines.
The next significant risk for investors in Hong Kong and or Chinese stocks are sliding prices because of a decelerating regional economy. As a result, this would lead to additional margin calls and force a vicious circle of panic selling.