On May 15th, David Webb published a report called “The Enigma Network: 50 stocks not to own,” in which he brought to the public’s attention a complex network of cross-shareholdings and related transactions between a number of companies listed on Hong Kong’s main board and its Growth Enterprise Market. We had previously re-posted the report as part of our weekly readings series.
Yesterday (Tuesday), the Growth Enterprise Market declined by 9.64%, its steepest one-day drop since August 2015. Of the 20 companies that saw the biggest price decline on Tuesday, 16 were named in Webb’s report. Two of those companies, China Jicheng Holdings and GreaterChina Professional Services, saw their share prices decline by more than 90%.
Webb said he could only speculate on the reason for the sudden volatility, but told Reuters that “the bigger picture here is that…the current regulatory system is not working and these problems have been allowed to build up by the Hong Kong exchange.”
For those interested, you can follow / read some of the related media coverage here:
- Hong Kong’s second board plumbs record lows amid market jitters (Reuters)
- ‘Enigma Network’ rocks Hong Kong markets with sudden 90% losses (Bloomberg)
- Traders seek source of Hong Kong’s ‘Enigma’ market crash (FT)
- Activist investor calls Hong Kong market rout (Channel NewsAsia)
You can find additional commentary and updates on the Webb-site.