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Showing posts from July, 2017

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…