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Confessions of a market maker in Hong Kong’s penny stocks fiasco

The fiasco with Hong Kong’s penny stocks had been spreading like wildfire. How did it happen like this?
Let’s imagine I’m one of the professional traders whose magic flute has many penny stock investors astray, down the abyss to their personal misfortune.
But don’t blame me. I’m no different from the unsupervised child who finds the cookie jar open. I do what every kid does -- I gouge on cookies till I’m stuffed.
I work in a securities firm you see, but my boss is no ordinary broker. He’s a chong kar (莊家) – market maker. He “made” the stock price of the listed companies he controlled.
The trade craft is derived from ancient wisdom. First, make up some good news about a company. Then, the men on the right side of the room call in buy orders, while those on the left side sell them the stock, and vice versa.
The price goes up and up, until the mom-and-pop investors take notice and pile in. Next announce a massive rights issue to scare off the little shareholders, so shares can be picked…

Tracking the short-sellers

Short-sellers are now a regular fixture of the stock market, yet most investors still do not have enough information to get a handle on what they are doing.
But as prominent investor and writer Jim Rogers observed in his book Street Smart, short-sellers have a better record at getting their bets right compared with most traders because they can lose big time if they get it wrong.
So it would be useful for the rest of us to get a fairly accurate picture of how widespread their activity is in order to gauge the level of bearish sentiment surrounding a stock or the market in general, so that we can better make an informed decision on our investments.
Short-sellers borrow scrip in the securities lending market to sell in the hope of making a profit by buying it back cheaper later.
But while they may play a role in shining an unwelcome spotlight on under-performing firms, some of them get plenty of brickbats for the hardball tactics they use when they ambush a company after building a big…

Many Hong Kong penny investors caught in cross-holdings web

Two weeks ago, a sudden plunge in a string of penny stocks on the Hong Kong stock exchange wiped out US$6.1 billion in market value in two days and left some companies down 90 per cent.
Forty of those companies turned out to be part of a web of 50 firms linked by cross-holdings, overlapping directorships and questionable corporate transactions that former HKEX director-turned-independent investor and stock commentator David Webb had called out in a May report titled The Enigma Network: 50 stocks not to own.
Research from corporate intelligence portal Handshakes, an artificial intelligence platform run by Singapore startup DC Frontiers, now indicates that key individuals from the Enigma network are linked to a wider web of Hong Kong small caps.
Most of these companies share characteristics of the Enigma firms, such as overlapping directorships and similar histories of regulatory, enforcement or disciplinary reprimands from authorities, and could potentially trigger another rout, say a…

Here are three theories for explaining Hong Kong’s penny stock crash

Mainland Chinese investors were the biggest losers when dozens of Hong Kong’s penny stocks plunged, some losing as much as 90 per cent of their value, on June 27.
Three theories stand out to explain the crash.
First a little premble: 90 per cent of these penny stocks belong to an Enigma Network of 50 interconnected issues, mapped out in May by gadfly investor David Webb.
A professional trader, let’s call him Fun Gor, controls the network. He’s been having financial troubles, ever since trading in Lerado Financial Group Co. was suspended on June 6 pending a regulatory investigation.
The first and the most colourful theory says the crash was an ambush by enemies, of which Fun Gor has no shortage. There are the TV starlets who lost their shirts on his investment tips, his fellow traders whose sweethearts had made the wrong punt, and regulatory officials who were forced into a corner to conduct an industry-wide crackdown because of his recklessness. Even Webb himself had his 2.3 per cent…

China group buys into True Group; IPO on cards

Hong Kong-listed Tongfang Kontafarma has acquired a sizeable stake in Singapore-based fitness and wellness provider True Group for US$36.7 million in cash, a move that paves the way for the latter to significantly expand its presence across China.
The deal, announced on Tuesday afternoon, will see Tongfang Kontafarma - a Chinese company indirectly invested by Tsinghua University that primarily manufactures and sells prescription drugs - take a 51 per cent stake in True's Singapore and China businesses, as well as a 29 per cent stake in its Taiwan operations.
As part of its longer-term growth strategy, True also intends to pursue an initial public offering (IPO) on the Hong Kong Stock Exchange within the next two years or so.
True currently owns and operates 26 fitness and yoga centres in Singapore, China and Taiwan, with an annual turnover in excess of US$100 million.
The company's founder and group chief executive officer Patrick Wee said the new partnership with Tongfang Ko…

Ex-Nomura trader tells jury how bosses taught him to lie to clients

When Caleb Chao started working on Nomura Holdings Inc's mortgage-bond desk after graduating from college, he got an education very different from the one offered at Cornell University.
Testifying at the trial of three former Nomura traders, Mr Chao said on Monday he was soon taught how to mislead customers about prices and other details in order to get larger commissions.
"The purpose was to sort of make a client feel like we were working for them, but in reality we were making more money," Mr Chao told jurors in federal court in Hartford, Connecticut. "I just graduated from college and I had no other prior experience. I was relying on how my bosses told me how the market operated."
Mr Chao, who worked for Nomura from 2010 to 2014, is the second former trader at the Japanese firm to take the stand for prosecutors in the trial of three ex-colleagues accused of lying to their clients.
Ross Shapiro, Michael Gramins and Tyler Peters deny wrongdoing, saying their …

Short-seller invasion of Hong Kong spurs an unusual defence plan

One of Hong Kong's most high-profile targets of activist short sellers has hatched an unorthodox plan to fight back.
It's called the "anti-malicious short selling alliance.'' The idea is for companies to band together when bearish traders pounce, sharing crisis-management advice and in some cases even offering equity investments. Fullshare Holdings Ltd, the property company that unveiled the plan on Monday, has faced allegations from two short sellers in the last month.
The proposal highlights how ubiquitous short sellers have become in Hong Kong. Bearish research firms tracked by Activist Insight have started 18 campaigns in the city during the past 12 months, the most since at least 2012.
Short sellers including Muddy Waters and Glaucus Research dismissed Fullshare's idea, saying it would be bad for shareholders.
"The best idea is to have open and transparent reporting, which the accounts are supposed to reflect," said Andrew Sullivan, a managing …

More Singapore companies consider moving to Hong Kong bourse

More Singapore companies consider moving to Hong Kong bourse
The competition between the Singapore Exchange (SGX) and the stock exchange of Hong Kong for listings looks set to intensify as more companies here mull over moves to head to the Republic's rival to raise capital.
Market watchers said this reveals that a growing number of companies are hoping to deepen their business presence in the Greater China market, but these moves are not a guaranteed success.
As Osim prepares its initial public offering (IPO) in Hong Kong as V3 Group, news emerged earlier this month that Pan-United Corp is spinning off its Chinese port division for a Hong Kong listing, while LHN said it is eyeing a dual primary listing there.
Both SGX-listed, Pan-United is Singapore's largest ready-mixed concrete and cement supplier, and LHN is a real estate management firm.
The number of Singapore companies exploring a Hong Kong IPO has "doubled", according to PwC.
    21 Number of newly listed com…

Noble Group's shares and bonds continue in freefall

Shares in Noble Group continued their free fall on Thursday, as analysts hurriedly slashed their target price for the stock following the firm's shock loss for the first quarter.
Its bonds followed a similar trajectory, tumbling on fears that the commodity trader might have problems meeting its debt obligations.
The company's shares crashed another 24 per cent, or 21 cents, to 66.5 Singapore cents on Friday, reaching a new 15-year low just a day after a record 32 per cent plunge.
Its 6.75 per cent bonds due 2020 fell to trade at about 54 cents on the dollar for a yield of 34 per cent; they had started the week at more than 95 cents.
Noble had announced after the market close on Thursday a loss of US$129.3 million despite a rise in revenue, and attributed this to a dislocation in coal markets and higher oil prices.
Its founder Richard Elman told shareholders to expect a "long, hard slog" to profitability, which the company will most likely regain in the 2018/2019 fin…