Rout wipes $35bn off market value of Hong Kong companies

After $35 billion in market value was erased from three Hong Kong-listed companies over two days, investors are asking if the city’s regulator should have done more to prevent the sudden selloff.

Goldin Financial Holdings and Goldin Properties Holdings, controlled by billionaire Pan Sutong, plunged more than 40 per cent Thursday.

A day earlier, Hanergy Thin Film Power Group tumbled 47 per cent in 24 minutes before trading in the Chinese solar company's shares was suspended.

The stocks, which had surged at least 500 per cent in the 12 months before the rout, can also be bought and sold by mainland investors through an exchange link.

The volatility illustrates the need for regulators to keep pace with the boom in China’s stock markets.

In Hong Kong, the Securities and Futures Commission and the bourse operator share the task of trying to weed out stock manipulation while also encouraging the equity market to play a bigger role in boosting economic expansion.

“Should the stock exchange focus on business or regulation?” Paul Chan, the Hong Kong-based chief investment officer for Asia ex-Japan at Invesco, said Thursday. “It cannot promote and regulate at the same time.

The current management definitely wants more growth. When retail investors are upset, they protest.

When foreign investors get burnt they will never come back.”

While mainland authorities have cracked down on manipulation and insider trading in an effort to reduce risks as the rally lured a record number of novice investors, Hong Kong’s SFC hasn’t publicly stepped up its intervention in the city’s equity market this year.

The Hang Seng Composite Index has surged in 2015 as the Shanghai and Shenzhen rallies spilled over and investors bet that dual-listed stock valuations would catch up with their mainland counterparts.

Goldin Financial’s 43 per cent drop on Thursday wiped out $12 billion in market value while Goldin Properties, down 41 percent, shrank by $4.6 billion.

Hanergy investors lost $19 billion on Wednesday before the trading halt. Goldin Financial added 2.2 per cent at 1.48 pm in Hong Kong, while Goldin Properties climbed 6 percent.

Goldin Group’s operations are functioning normally, its financial position is stable and neither company is aware of any reason for the price swings, iPR Ogilvy and Mather, which manages both firms’ external media relations, said by e-mail Thursday.

Hanergy shares remain suspended pending “an announcement containing inside information,” according to the company.

Bloomberg