Hong Kong Small-Cap Stocks Sink 93%

Hong Kong Small-Cap Stocks Sink 93%

Stocks with small capitalization in the Hong Kong’s market took a series of nose-dives today

Bloomberg reports that over $1.4 billion was expunged from the value of five small-cap companies. The publication noted two of the companies with big losses. Sino Haijing Holdings Ltd. lost 93%. And Beijing Gas Blue Sky Holdings Ltd. dropped 71%.

Concentrated ownership and complicated holding structures over various stocks are said to be the reason for Hong Kong’s market volatility, with some calling for a tighter corporate governance.

Speculation of an Obligatory Sell-off

Without any known explanation to this sudden downfall, traders hypothesized that the fall was due to a forced sell-off.

Normally when shares crash like this it’s usually someone pledging a lot of shares with a broker and failing to meet margin calls

Francis Lun, Geo Securities CEO

In Hong Kong’s exchange rules, a shareholder can borrow against a stock on a condition that it is solely for personal financial reasons; not loans, guarantees or support for the company.

There is also alarm in Mainland China caused by bubbling share pledges on account of obligatory stocks sell-off as investors did not meet full collateral requirements.

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