Posts Tagged ‘Hong Kong investors’

Hong Kong firms join forces to make deals under Silk Road plan

June 19, 2017

Companies will draw on their experience to initially establish infrastructure projects and industrial parks in Thailand and Vietnam

By Josh Ye
South China Morning Post

Monday, June 19, 2017, 8:48pm

Hong Kong companies will form a consortium to build infrastructure projects and industrial parks in Thailand and Vietnam under mainland China’s Silk Road project, the Trade Development Council says.

Council president Vincent Lo Hong-sui said over 40 business leaders from Hong Kong and Shanghai formed a delegation while visiting the two countries last month and met both prime ministers.

He added that this was one of many steps in further involving Hong Kong companies with the “One Belt, One Road” initiative.

Lo said the statutory body was now forming “a consortium of local companies” to help them enter these developing markets as a collective force.

“We are looking to build infrastructure projects and industrial parks in countries under the belt and road initiative.”

The initiative was launched by Beijing in 2013 to promote the building of railways, roads, power plants and other infrastructure projects in 60 countries from Asia to Europe on its old Silk Road to promote trade and economic growth.

The council has identified eight countries out of the 65 under the scheme as the initial destinations for Hong Kong investment – Vietnam, Thailand, Indonesia, Saudi Arabia, United Arab Emirates, Poland, Hungary and the Czech Republic.

Nicholas Kwan, research director at the council, said Hong Kong investors were seasoned in managing supply chain systems across countries.

 Vincent Lo says numerous multibillion-dollar deals will be closed this year. Photo: Sam Tsang

Lo said the development level of many of the belt and road countries reminded him of mainland China three decades ago.

“Hong Kong investors have garnered a lot of practical experience in developing mainland China,” he said. “This experience is unique and will definitely benefit other countries.”

He said the council aimed to close several deals this year and estimated some projects were worth more than US$10 billion.

Lo added that chief executive-elect Carrie Lam Cheng Yuet-ngor had told him the next administration would fully support the council in furthering deals with countries linked to the trade initiative.

The council also announced that it would host its second belt and road summit in September, which looked to introduce more concrete plans for local firms to enter relevant countries.


Individual investors from the mainland get burned when they blindly apply their small-cap knowledge to Hong Kong stocks — Meet Eminence Enterprise Ltd — Saddled investors with a 99.99 percent loss over the past five years

December 7, 2016
December 6, 2016 — 11:00 AM EST December 7, 2016 — 3:32 AM EST
  • Repeat rights issuers under scrutiny as bourse link expands
  • China’s concerns highlight scope for regulatory friction

No one can fault the managers of Eminence Enterprise Ltd. for lacking chutzpah.

After saddling investors with a 99.99 percent loss over the past five years, the Hong Kong-listed property firm is asking shareholders to plow fresh capital into the business for the eighth time in five years. Eminence plans to raise at least HK$478.2 million ($61.7 million) in a rights offering next month, twice as much as its current market value.

It’s a scenario that often ends badly for Hong Kong investors, who stumped up more than $16 billion for rights offerings by the city’s smaller companies over the past five years, only to watch the median stock drop 36 percent in a rising market. Now, as China gives its citizens greater access to Hong Kong small-caps through a new cross-border exchange link, the city’s repeat rights issuers are coming under increased scrutiny.

Chinese authorities have warned investors to be wary of such companies, even as offerings like the one proposed by Eminence remain legal in the former British colony. Beijing’s concerns highlight the potential for friction as the exchange link blurs the lines between a high-touch regulatory regime in China and the more laissez faire system in Hong Kong.

“Individual investors from the mainland get burned when they blindly apply their small-cap knowledge to Hong Kong stocks,” said Dai Ming, a money manager at Hengsheng Asset Management Co. in Shanghai. “The mainland regulator sees small investors as the market foundation and offers them meticulous parenting. As Hong Kong seeks to boost trading by luring mainland investors, it must step up protection.”

Rights issues, in which a company offers new shares to existing stockholders, are used by firms around the world to raise capital for any number of reasons, including paying off debt and funding expansion. While Hong Kong requires companies to disclose details of planned and completed offerings, critics of the city’s regulations say unsophisticated investors are vulnerable to firms who use repeated issuance to keep loss-making businesses afloat.

Eminence’s proposed rights offering is subject to approval from independent shareholders, according to an exchange filing last month. The company, which also has a money-lending business, plans to use the funds for property investments and working capital, saying most of its HK$376 million of cash and cash equivalents at the end of October has been earmarked for other purposes.

The firm has no comment, according to Betty So, who identified herself as assistant company secretary for Easyknit Group, to whom calls to Eminence were transferred. The two businesses have offices and some top managers in common, and Easyknit, also a property firm, is listed as a substantial shareholder of Eminence in the latter’s latest annual report.

Read more: A QuickTake Q&A on the Shenzhen-Hong Kong exchange link.

Eminence recorded net losses in seven of the past 10 years, including a loss of HK$69.3 million in the fiscal year ended March that the company attributed to declines in the fair value of investment properties in Hong Kong, exchange filings and data compiled by Bloomberg show. Shares have tumbled more than 80 percent in each of the past four years, a period when the Hang Seng Index rose 19 percent.

Eminence is hardly unique. More than 290 companies in Hong Kong with market values below $1 billion have conducted rights offerings since December 2011, raising about six times more than their counterparts in China. The Hong Kong firms reported net losses totaling more than $5 billion during the period, versus a combined profit of about $2.5 billion for rights issuers in China, data compiled by Bloomberg show.

Faced with a rights issue, individual investors can buy more stock, betting the new funds will spur growth; hold tight and watch their shareholding get diluted; unload their stake; or, in some cases, sell the rights to other investors.

Sun Xiongjin, a 39-year-old resident of Wuhan in central China, decided to hold tight two years ago after China Environmental Energy Investment Ltd. — a Hong Kong-listed firm whose ventures have included recycling, Internet services and diamond trading — announced a rights issue at an 82 percent discount to the stock’s market price, the company’s second offering since 2011.

Sun’s HK$220,000 investment lost 90 percent of its value after the deeply discounted rights offer, while shareholders who subscribed to the rights lost more than 80 percent over two years. China Environmental reported net losses totaling about HK$1.6 billion in the three years through March, which it attributed to factors including goodwill impairments on its Internet and recycling businesses.

Shenzhen Warning

“I felt terrible,” Sun said in a phone interview. “I learned a lesson and now always check a company’s history of rights.”

China Environmental didn’t respond to questions from Bloomberg News delivered to the company’s Hong Kong office. The firm’s website lists no phone number or e-mail address. Shares fell 3.8 percent on Wednesday, while Eminence declined 1.4 percent.

China’s regulations on rights issues are stricter in some respects than those in Hong Kong. Chinese offerings require approval from the nation’s securities regulator and two-thirds of the votes in shareholder meetings, while Hong Kong rights issues don’t need stockholders to sign off if new shares amount to less than 50 percent of the firm’s existing equity.

Shenzhen’s exchange is adding warnings about Hong Kong rights issues to a risk-disclosure statement for traders who use the new link. The offerings have also been highlighted by state-run Chinese media as a potential danger for investors.

‘Cowboy Exchange’

For those who do their homework, Hong Kong offers all the information needed to avoid companies with a history of rights offerings that end poorly for shareholders.

“I can be angry about it, but that’s the marketplace here,” said John White, a Hong Kong-based managing director at Heitman LLC, a global real estate investment firm whose holdings include publicly-traded property shares.

The city operates a disclosure-based regulatory regime instead of trying to weed out bad actors ahead of time, Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd., wrote in a blog post in September. The bourse’s rules offer protections for small investors, including the need for independent stockholder approval on large rights offerings, an exchange spokeswoman said in response to questions from Bloomberg News. Hong Kong’s Securities & Futures Commission didn’t reply to requests for comment.For David Webb, a shareholder activist and former board member of Hong Kong’s exchange, the city needs to do more to protect its reputation as a major financial hub.

“We are starting to look like the cowboy exchange to China, while they are starting to look like the grown-up and a better regulated market,” Webb said.

China Stock Market: Regulators in China must fine-tune circuit breaker to avoid repeat of ‘Black Monday’

January 5, 2016

Allowing market forces to play a bigger role would result in less volatility and greater confidence among retail investors

South China Morning Post Editorial

China’s regulators exert a firm control over many things, but the stock market is not one of them. The first day of trading in the new year was labelled “Black Monday”, thanks in no small part to the newly launched circuit breaker, which halted trading in Shenzhen and Shanghai shortly after midday. The disruption has been an embarrassing hiccup for officials.

READ MORE: China’s internet users see dark humour amid stock market rout on first trading day of 2016

The market rout hit not only mainland punters, but Hong Kong investors as well. Coupled with news of another contraction in the country’s manufacturing sector, the ripple effect was felt by markets around the world. The fiasco is a good example of why Beijing needs to allow market forces to work rather than tightening control.

Ostensibly introduced to calm panic trading and to avoid the placing of careless “fat finger” trade orders, the new circuit breaker resulted in even more selling on Monday by nervous mainland investors before the session was suspended. Under the system, the trading of stocks, index futures and options will be suspended for 15 minutes when the CSI 300 Index falls or rises by more than 5 per cent, with trading halted for the rest of the session if it moves by 7 per cent. The index tracks large-cap stocks in Shanghai and Shenzhen.

Aptly holding a calender with “spring” calligraphed, an investor looks through stock information at a trading hall on the first trading day of 2016, which was cut short in the afternoon by a “circuit breaker”. Photo: Xinhua

Stockbrokers have warned of more volatility ahead as the new system kicks in, while a six-month ban on selling by major stockholders of A-share companies will be lifted on Friday. Blocking sales often encourages panic to build up until it spills over into the next trading session. The circuit breaker on the mainland is more stringent than those applied overseas such as in the United States, South Korea and India.

READ MORE: Black debut as China markets suspend business after 7 per cent fall triggers circuit breaker on first trading day of 2016

Given the ease with which it may be triggered, mainland finance officials could face more embarrassing market disruptions in the weeks and months ahead. Circuit breakers make sense in a market like the US, where algorithmic or computer trading dominates and has been blamed for increasing volatility and causing the “flash crash” in May 2010. But they are not so well suited to a market like China’s, where most traders are still retail investors. On Monday, while the northbound trade under the Shanghai-Hong Kong Stock Connect scheme was suspended, southbound trade was deluged by panic selling, thereby contributing to the plunge in the local market.

Black Monday is more than a teething problem. Officials may need to revamp the system. In the meantime, China and its investors need to be ready to pay a painful price as the country’s financial markets adapt to international practices and standards.



Why did mainland Chinese investors suddenly go on a Hong Kong buying spree?

April 13, 2015


By Jason Karaian

Last November, when China allowed mainland residents to trade shares in Hong Kong and Hong Kong investors to access previously closed off Chinese companies, there was widespread speculation that tidal waves of money would start to flow between mainland China and Hong Kong. Those expectations fell flat—until now.

In recent weeks, and particularly the past few days, the “southbound” trading in Hong Kong stocks by mainland investors has suddenly surged:

What gives? The move could be tied to Chinese regulators recently allowing local mutual funds to invest in Hong Kong stocks, opening up the market to a broader group of mainland savers, who have limited options for investing their cash at home. And the mainland market’s heady rise this year—which is almost totally divorced from the country’s slowing economy—has encouraged lots of people to open brokerage accounts, few of whom are very well versed in the world of finance. Stocks are going up, so more people sign up to buy stocks, which pushes stocks up, at least for a while:

Tap image to zoom

Even after the recent rally, Hong Kong shares seem like a bargain compared with their counterparts on the mainland. Shares that trade in both markets are still worth 20% more on the mainland than in Hong Kong, on average. In theory, an open market for trading between the two markets will narrow this gap—which implies a further rise in Hong Kong stocks.

Some of the best performing dual-listed shares in recent days were those that traded at the biggest premiums on the mainland relative to Hong Kong, suggesting that investors have developed a rather simple (and predictable) system for screening shares.

But a look at the most popular Hong Kong shares also shows a basic preference for companies already known to mainland investors. For example, the share price of electronics retailer Gome—which does most of its business on the mainland but is listed solely in Hong Kong—has more than doubled in just the past two weeks.

The market rally also seems to be self-fulfilling. For example, shares of brokers like Haitong Securities have risen as investors bet that the investment boom will boost the shares of investing-related companies. Indeed, the most heavily traded shares today were in the operator of the Hong Kong stock market itself, which gained nearly 20%, making it the most valuable exchange operator in the world (paywall).

Plenty of foreign firms have Hong Kong listings—the city-state is one of the world’s most important financial centers, after all—which might suggest that the market euphoria would boost their shares as well. However, so far the party hasn’t spread to the big multinational names whose shares trade in Hong Kong. For example, so far this month, the shares of luggage maker Samsonite have risen by a modest 3% and luxury group Prada have fallen by 4%. Companies with multiple listings also haven’t seen much uplift in Hong Kong relative to other exchanges:

For now, to many foreign companies’ chagrin, China’s market madness is largely a local affair.