Solar panel manufacturer Hanergy Thin Film Power fell 47% in about an hour on May 20.
The next day brokerage Goldin Financial dropped about 44% and sister firm Goldin Properties Holdings fell 41% for a combined $16.4bn (HK$128bn) loss of market capitalisation.
Some funds authorised for sale in Hong Kong had them as the number one holding:
Hanergy Thin Film was the top holding (4.55%) of Ping An of China CSI HK Mid Cap Select ETF (as of April 30).
Goldin Financial was the top holding (3.07%) in Citigroup First Investment’s China StormRiders Fund (as of March 31), as well as the top holding (2.64%) in the Hang Seng Mid-Cap Index Fund (March 31). Goldin Properties was the top holding (1.49%) in the iShares MSCI Asia APEX Small Cap Index (March 31).
The week’s view for the four funds:
The Citi China Storm Rider’s fund price for May 21 is not yet reported in the above chart.
Assuming the fund holds 3% of Goldin Financial, the potential drag could be an estimated 1.5% loss from that stock alone on May 21, according to Luke Ng, vice president at FE Advisory Asia.
The same four funds over a three-year horizon:
More volatility coming
The reasons for the steep plunge in the stocks — some of the most heavily traded on the Stock Connect — are still unclear. But Caixin reports that Hanergy “relied heavily on connected deals with its parent company, a practice that can lead to accusations of market manipulation”.
Hanergy Thin Film is the listed arm of Beijing-based Hanergy Holding Group, headed by China’s richest man.
Before the meltdown, the two Goldin stocks were among the best performing on the exchange, up about 300% this year. They are part of Goldin Group, a conglomerate involved in consumer electronics, real estate development, polo, wine and financial services.
More volatility is expected as several events could increase the hot money that has been flowing through the Stock Connect.
This year, Shenzhen is expected to follow the Shanghai bourse and link its market with Hong Kong. Valuations in Shenzhen have already increased based on expectations.
Moreover, if China’s A-shares are included in world indices after a review this year, large amounts of capital could flow into the mainland market, said Catherine Yeung, investment director at Fidelity Investments.
The Hong Kong Stock Exchange does not use mechanisms like the circuit breakers employed in US exchanges, which force trading in a stock to halt if the price movement reaches a certain percentage in either direction.