Yesterday China's richest man, Li Hejun, lost more than half his fortune when his solar company stock suddenly crashed over 50%. Overnight it happened again, and Hong Kong’s securities regulator, warned other investors to exercise "extreme caution," as Hong Kong's best-performing stocks this year are crashing in a serial, tulip-like manner. And another billionaire was promptly wiped out: Pan Sutong started the day engorged with wealth after his companies Goldin Financial and Goldin Properties had risen 300% this year. By the close he had lost 60% of his wealth!
What goes up... crashes to floor in a wealth-destroying frenzy...
“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.”
As Bloomberg reports,
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 percent in Hong Kong trading Thursday. There was no immediate explanation for the drop. Before the rout, the two stocks surged more than 300 percent in 2015 for the biggest gains on the Hang Seng Composite Index.
The tumble follows the mysterious 47 percent plunge in 24 minutes by Hanergy Thin Film Power Group Ltd. on Wednesday, which erased $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 $30 billion, making them among Hong Kong’s biggest listed companies, while doubts over the sustainability of the rallies increased.
“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.”
The gains by the Goldin Group companies this year had enriched Pan by $20.4 billion, the biggest increase in wealth among members of the Bloomberg Billionaires Index. Pan and 19 other shareholders controlled 98.6 percent of Goldin Financial’s shares as of March 4, according to Hong Kong’s securities regulator, which warned other investors to exercise “extreme caution”.
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.
But - who could have seen this coming - especially with these avid traders watching over these markets...
As for Pan, don't cry for him just yet. With a few billion in paper wealth left, we are sure he will do ok at least until the next single stock crash wipes out another 50% of his wealth, and so on.