HONG KONG: Hong Kong traders are used to seeing strange things on the city’s small-cap exchange, home to some of the world’s biggest price swings. But the initial public offering (IPO) of GME Group Holdings Ltd on Wednesday had even hardened market watchers scratching their heads. Shares of the tunnel excavating subcontractor rose 543% before they were suspended from 1pm local time by the Securities and Futures Commission (SFC). The stock was trading for the first time on the city’s Growth Enterprise Market (GEM). The move raised eyebrows in the former British colony, which is known for its laissez-faire markets and light-touch approach to regulation. It comes after a year in which IPOs on GEM soared by thousands of percentage points for reasons seemingly unrelated to company performance. Just last month, the SFC and the operator of the city’s exchanges issued a joint statement reminding participants to follow market rules. “This is very surprising,” said Ricky Chim, who represents the financial services constituency in the city’s election committee, in reference to the suspension occurring on the stock’s first trading day. “It has never happened according to my recollection.”
Hong Kong Exchanges & Clearing Ltd (HKEX) and the SFC said in the January joint statement that many GEM stocks have highly concentrated shareholdings and a small shareholder base. Half of the 10 best first-day gainers in 2015 saw their share prices plunge by more than 90% from their peak within a month, they said. The joint statement laid out conditions for GEM listings, including the need to operate in a “fair and orderly manner,” and threatened action against companies and brokers that fail to have “appropriate policies and procedures” in place. Several GEM placements, including clothing firm My Heart Bodibra Group Ltd, shelved their listings after the statement. Wednesday’s IPO was the just the third on GEM since the joint statement, and by far the largest mover. The other debuts were by Dadi Education Holdings Ltd, which fell 2.9% on its first day, and CBK Holdings Ltd, which rose 18%, according to data compiled by Bloomberg. GME Group’s stock jumped from HK$0.54 to HK$3.47 by the time of the halt, the data show. More than 20 million shares changed hands in the morning session. That activity and price rise suggested to the regulator “that there may not be an open market in the trading of the shares,” GME said in a statement released after the suspension.
