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a rare "stop"!

at the last moment of being included in the hang seng composite index and other indices, the hang seng index company issued an announcement on september 9, revising the previous inclusion decision to not include shengneng group.

this company, called shengneng group, is a hong kong-listed company that was recently "named" by the hong kong securities and futures commission for having highly concentrated equity, and its share price plummeted 98% in one day.

it is rare in the hong kong stock market to modify the inclusion decision just before the index component stocks are about to be included.

rare "stop"

the index notice of "revising the index review results due to high concentration of equity" released by hang seng indexes company on september 9 showed that shengneng group (stock code: 2459) will not be included in the quarterly index adjustment effective on september 10, 2024 (tuesday) due to its being on the securities and futures commission's list of highly concentrated equity. some indices include the hang seng composite index, hang seng composite industry index-industrial, hang seng composite mid-cap index, hang seng composite small cap index, hang seng stock connect index, hang seng stock connect mid-cap index, hang seng stock connect small cap index, hang seng stock connect hong kong companies index, hang seng small cap (investable) index, hang seng stock connect raw materials and industrial index, hang seng stock connect raw materials and industrial (investable) index, which includes multiple indices involving hong kong stock connect.

it is worth noting that just recently on august 16, 2024, hang seng indexes company announced the results of the quarterly review of the hang seng index series ending june 30, 2024. in this quarterly review, the constituent stocks of the hang seng index (hsi) did not change, and the number remained at 82, but the constituent stocks of the hang seng composite index (hsci) changed, and the number of constituent stocks increased from 509 to 518, of which 38 stocks were newly included in the hang seng composite index constituents, and another 29 stocks were removed. among the 38 stocks included above, shengneng group is included.

it is rare in the past to modify the inclusion decision at the last minute of adjusting the index components.

perhaps affected by the news that the stock was revised to not be included, shengneng group's stock price plummeted again on september 9, closing down 23.08%, and at one point fell by more than 30% during the session.

prior to this, on september 3, shengneng group's stock price "collapsed", closing down 98.40% that day, and the intraday decline once exceeded 99%, a large drop that is rare in the hong kong stock market. before the flash crash, shengneng group's stock price had been rising since april this year, with a maximum increase of more than 10 times from the low point.

company stock price trend before the crash

its recent round of plunge began with being “named” by the hong kong securities and futures commission.

on the evening of september 2, the announcement released by the hong kong securities and futures commission showed that as of august 19 this year, 25 shareholders of shengneng group held a total of approximately 279 million shares, equivalent to 27.65% of the issued share capital; in addition, as of august 19 this year, there were approximately 49.31 million shares (accounting for 4.88% of the issued share capital) that were not deposited in the central clearing and settlement system, nor in the hong kong shareholder register of shengneng group. the relevant equity, together with 582.5 million shares held by a controlling shareholder (accounting for 57.67% of the issued share capital), is equivalent to 90.2% of the issued shares. therefore, only approximately 98.94 million shares (accounting for 9.8% of the issued share capital) of shengneng group are held by other shareholders. the announcement of the hong kong securities and futures commission also showed that between may 2 and august 19, the closing price of shengneng group rose 463% from hk$3.76 to hk$21.15. the hong kong securities and futures commission reminds that given the high concentration of equity among a small number of shareholders, the company's share price may fluctuate significantly even if a small number of shares are traded. shareholders and potential investors are advised to act prudently when buying and selling the company's shares.

highly concentrated equity stocks are one of the key regulatory areas in the hong kong stock market

highly concentrated equity is one of the characteristics of some hong kong stocks, whose share prices are prone to sudden rises and falls, and is also the focus of attention and monitoring by hong kong regulators.

since last year, there are still many suspected "monster stocks" in the hong kong stock market that have skyrocketed several times in a short period of time. these companies generally have common characteristics: new stocks and second-new stocks that have just been listed, with small market capitalization and highly concentrated equity. securities times reporters found through investigation that there are often professional trading teams behind these stocks. after continuously releasing good news in the market and concentrating on raising stock prices for a period of time, retail investors are convinced that "there are sweet benefits" and rush to enter the market. in particular, in order to be included in various hong kong market indices and hong kong stock connect, stock prices are pulled up to sprint for "entry into the connect". after "entry into the connect", major shareholders quickly sell their stocks and cash out.

the reporter found that since the beginning of this year, the stocks with highly concentrated equity that have been "named" by the hong kong securities and futures commission include changjiu shares (6959), lecang logistics (2490), migao group (9879), guofu innovation (0290), shengneng group (2459), etc. in addition to shengneng group, the stock prices of many companies have also experienced violent fluctuations after being "named".

for example, changjiu shares were "named" by the hong kong securities and futures commission on june 19 this year for their highly concentrated equity structure, and on june 20, changjiu shares' share price plummeted 65.71%.

on june 19, the hong kong securities and futures commission issued an announcement stating that as of june 3, 2024, nine shareholders of changjiu holdings held a total of 48.739 million shares of the company, equivalent to 24.11% of the company's issued share capital. the relevant shares, together with the 150 million shares held by the family of the company's chairman and ceo (accounting for 74.20% of the issued share capital), are equivalent to 98.31% of the company's issued share capital. therefore, only 3.421 million shares (accounting for 1.69% of the issued share capital) of the company are held by other shareholders.

on august 23 this year, guofu innovation was "named" by the hong kong securities and futures commission for its highly concentrated equity. the stock price fluctuated violently in the following trading day, with the intraday decline reaching 26.97% at one point.

hong hao, chief economist of si rui group, said that the market manipulation by companies with highly concentrated equity is a long-standing phenomenon in the hong kong market that has been repeatedly banned. only by cracking down on such behavior can regulators achieve a certain effect.

wen tianna, president of broad capital international, also suggested: first, regulators should pay more attention to listed companies with highly concentrated equity, increase penalties for violations of laws and regulations, and burst the bubble; second, the listing quality of new stocks in hong kong should be improved, and a series of standards such as the sustainability of corporate performance, the health of the business, the trading volume and activity of the company's equity, the participation of institutional investors, and the analysis of rating agencies should be improved to raise the threshold from the source.

there are also fund managers with chinese backgrounds in hong kong who said that when the market adjusts, inflated stock prices will not be able to hold up, especially after being named by the regulatory authorities. investors will definitely avoid such shares, and shareholders, securities firms, and third parties will begin to cut their positions, accelerating the plunge in stock prices. for southbound funds, understanding the methods of the market makers can also help avoid being tricked in investment and enhance investors' ability to avoid risks.