Asia’s most manipulated market is…

Gillem Tulloch · 8 February 2018

Are Hong Kong-listed companies the most manipulated in Asia? Of the 6,000 largest companies in Asia, 16 rose by more than 10% in the ten trading days before New Year and then fell by more than 10% in the ten days after. Although Philtrust Bank in the Philippines took the top spot with a total 20-day swing of 71%, the list was dominated by companies listed in Hong Kong. Some familiar names appear, including China High Speed and China Greenland Broad Greenstate. We wonder whether the Hong Kong Stock Connect has created a regulatory blind spot that allows stocks to be manipulated with impunity.

Share price window dressing

You’d be forgiven for thinking that share price manipulation was allowed in Hong Kong; no market is a complete stranger to such activities, but Hong Kong seems particularly prone. To illustrate the point, we’ve looked at the probable incidence rate of egregious window dressing at the recent year-end, 31 December 2017. There may be an incentive to boost share prices in order to inflate valuations and performance going into a financial year-end. Since December is the financial year-end for most businesses this is when we would expect to find some of the worst examples. Often, it’s not entirely clear who is manipulating a stock; it could be a fund a manager with a large position or a major shareholder with pledged shares.

We downloaded share price data around 31 December on all companies in Asia with a market capitalisation exceeding US$750m, which comes to around 6,000 companies. We only included companies on our shortlist if their prices ran up by more than 10% in the ten trading days before New Year, and then fell by more than 10% in the ten days after. Given the strict criteria, it is a short list with only 16 companies on it, as shown in Figure 1 (on any randomly chosen day the number of stocks is normally less than five). Interestingly, while Hong Kong-listed companies make up just 11% of the entire sample, they account for almost half of the companies on our shortlist.
2018-01-17-Manipulation NS-Figure 01

Philtrust Bank

The most manipulated looking share price belongs, not to a Hong Kong company, but to Philtrust Bank, as shown in Figure 2. Its share price rose 45% in the ten days prior to the year-end and then fell 26% in the days after. A similar pattern occurred in the preceding two quarters (end-September and end-June). You have to wonder why its share price is so obviously manipulated, and why the regulator hasn’t stepped in to investigate.
2018-01-17-Manipulation NS-Figure 02
Also on our shortlist are some familiar names on which we’ve written in the past, including China High Speed Transmission[1] (CHST), now subsidiary of Fullshare, and China Greenland Broad Greenstate[2]. It seems that some names just keep reappearing on our screens for all the wrong reasons. In Appendix 1, we have reproduced the one-year share price charts for all the companies on our shortlist. Some of most interesting include Legend Holdings and Bank of Tianjin.

China High Speed Transmission

CHST is an intriguing case; it represents another chapter in the Fullshare saga. Fullshare took control of CHST at the end of 2016 after the successful completion of its all-share offer for the company, although CHST retained its separate listing.

Shortly after the offer closed, the CHST shares acquired by Fullshare were placed back into CCASS, the Hong Kong Exchange’s settlement system. Indeed, since early January 2017, 99.9% of CHST’s shares have been held in CCASS. In such circumstances, it is reasonable to assume the shares have been pledged, as there would be no other obvious reason to hold them in CCASS[3].

CHST has been increasingly popular with mainland investors over the last year: of the 25% free float, nearly 14% is now held through the Stock Connect. As Figure 3 shows, CHST’s share price rose sharply in late December last year, increasing by 35% from HK$10/share on 19 December to HK$13.50/share on 29 December; the shares were particularly active on 22 and 29 December, the last two trading days before Christmas and New Year, when the share price shot up by 16% and 12% respectively, on very high volumes, over 10x the daily average. Data from the exchange suggests that most of the shares were traded through the Stock Connect. The share price slumped immediately, falling by 11% on the first trading day of 2018. It is also worth noting that there was a similar spike in the share price at the end of September 2017.
2018-01-17-Manipulation NS-Figure 03
Just a few weeks into the New Year, on 19 January 2018, Fullshare announced that it had entered into a memorandum of understanding with an unnamed mainland company regarding a “possible conditional voluntary partial cash offer” for up to 75% of CHST. Whether the possible offer and the share price shenanigans are related is unclear. Nonetheless, it seems that Fullshare is already planning to cash out of CHST, making the original transaction look suspiciously like a circuitous way for Fullshare to raise cash through a large equity issue; something it probably could not have done directly.

A similar story the year before

Interestingly, even more Hong Kong stocks look to have been manipulated at the previous year-end, YE16, with 14 having risen by more than 10% in the ten days before New Year, and falling by more than 10% in the ten days after. At YE15, the total number came to 18. Moreover, there were a further 87 companies listed in mainland China that looked equally manipulated. Indeed, A-shares dominated the list not just at YE15 but in the prior two years, as shown in Figure 4.

We suspect that the likely increase in the number of manipulated stocks in Hong Kong has to do with the opening of the Stock Connect[4] between Hong Kong, Shanghai and Shenzhen in November 2014. It suggests that either China’s securities regular, the CSRC, or Hong Kong’s regulator, the SFC, are unable or unwilling to prevent stock manipulation. However, it is possible that the overall decline in numbers suggests that they might be getting to grips with the situation.
2018-01-17-Manipulation NS-Figure 04

Hanergy manipulated up 4,100%

Year-end window dressing is not the only form of share price manipulation. Some share prices are manipulated up over long periods of time. Perhaps the most infamous example in Hong Kong was the case of Hanergy (566 HK, HTF), a manufacturer of thin film silicon solar modules. The company’s share price rose by over 4100% in the three years between 2012 and 2015, as shown in Figure 5, trading on a peak trailing price to sales of 27x, and 81x PER. At its height, the company had a market capitalisation of US$39bn, making its founder, Li Hejun, China’s richest man[5]. According to an investigation by the Financial Times[6], the trading patterns behind the stock’s meteoric rise were highly unusual with most of the gains taking place in the last ten minutes of trading.
2018-01-17-Manipulation NS-Figure 05
Inexplicably, neither the Hong Kong Exchange nor Hong Kong’s securities regulator, the SFC, made any apparent attempt to prevent this blatant share price manipulation. It was only after a dramatic intra-day fall in Hanergy’s share price that the company asked for a suspension. The SFC then imposed a longer suspension on stating that it needed to investigate the company’s business practices given that the majority of sales were to its parent company. Mr Li was eventually disqualified from being a director or being involved in the management of any listed or unlisted corporation in Hong Kong for eight years[7] owing to breaches of duty, in particular his failure to properly disclose a related-party loan. No mention was made of share price manipulation.

The Enigma Network

Any pretence that share price manipulation was a thing of the past in Hong Kong was dispelled by David Webb’s May 2017 exposé, entitled “The Enigma Network: 50 stocks not to own”[8]. Within, he detailed a complex web of cross-shareholdings involving 50 Hong Kong listed companies, many of which appeared to be involved in share price manipulation. The SFC “sprung” into action some five months later, in October, launching Hong Kong’s largest ever financial raid involving 136 officers[9].

Don’t criticize Hong Kong-listed companies

While the SFC might be slow to prosecute companies accused of market manipulation, it seems to show no such restraint when it comes to research providers critical of Hong Kong listed companies. The SFC[10] fined Moody’s HK$11m due to arithmetic errors in a 2011 report entitled “Red Flags for Emerging-Market Companies: A Focus on China”. Subsequent analysis by David Webb showed that the report’s error rate was about 1.2%[11]. If this is the standard being set, then we’re all in trouble. Furthermore, of the six stocks highlighted as being negative outliers, three had been suspended at the time of David Webb’s report, having recording significant share price declines. Furthermore, the SFC’s proceedings[12] against one of Asia’s most successful short-seller, Andrew Left of Citron Research, for a report written on China Evergrande was equally disturbing. As David Webb[13] once more points out, Mr Left was simply expressing his opinion. Ironically, it appears China Evergrande (and other companies) can manipulate its share price unhindered so long as it does so through share buybacks and adheres to the technical rules set out in the Exchange’s Listing Rules on maximum price, disclosure, etc.[14].

The problem with these prosecutions is the signal that it sends market participants. Economists spend a lot of time analysing the signals coming from central banks as an indicator of future policy direction. Similarly, stock market participants take their cue from the signals given by the regulator. One interpretation is that listed corporates can pretty much do what they want as long as it’s not on the front page of the newspapers. As for research analysts, don’t criticise Hong Kong listed companies or you’ll be run out of town.

This may be slightly unfair. The likelihood is that it’s very difficult for the SFC to prove share price manipulation beyond reasonable doubt (for a criminal conviction), or even on the balance of probabilities (for civil liability), given the use of proxies by those trying to create a false market. It’s also likely that the Hong Kong Stock Connect[15] makes it more difficult for the SFC to oversee mainland Chinese traders and monitor suspicious trading patterns. In other words, there appears to be a black hole in its regulatory oversight.
2018-01-17-Manipulation NS-Figure 06
2018-01-17-Manipulation NS-Figure 08
2018-01-17-Manipulation NS-Figure 10
2018-01-17-Manipulation NS-Figure 12
2018-01-17-Manipulation NS-Figure 14
2018-01-17-Manipulation NS-Figure 16
2018-01-17-Manipulation NS-Figure 18

Appendix 2: Asian companies with largest likely window dressing YE16

NameTickerPrice 21/12/2016 (LCL)Price 31/12/2016 (LCL)Before New Year (%)Price 12/01/2017 (LCL)After New Year (%)Total Change (%)
Knk Holdings Ltd8039 HK 0.991.7980.81.2-33113.8
Toga LtdTOGL US 0.0140.020647.10.015-27.274.3
China Goldjoy Gr1282 HK 0.60.9500.77-14.464.4
Hengtou Securi-H1476 HK 3.334.535.13.54-21.356.5
Good Friend Intl Hldgs Inc2398 HK 1.552.1840.61.85-15.155.8
Center Interna-A603098 CH 17.5924.0736.820.12-16.453.2
Sunshine 100 Chi2608 HK 2.963.7252.96-2045
Jinhui Shipping & TransportaJIN NO 6.65868.825232.57.8711-10.843.3
Virscend Educati1565 HK 4.625.5219.54.23-23.442.9
China Aluminum Cans 6898 HK 1.431.6716.81.31-21.638.3
Huili Resources Group Ltd1303 HK 1.451.61111.25-22.433.4
Zall Group Ltd2098 HK 5.16616.35.04-1632.3
Bpd Jabar BantenBJBR IJ 2990339013.42810-17.130.5
Elang Mahkota TeEMTK IJ 8700997514.78400-15.830.4
Smic981 HK 10.4412.1816.710.74-11.828.5
Termbray Industries Intl93 HK 0.53870.627116.40.5564-11.327.7
Asymchem Labor-A002821 CH 64.571.7511.260.08-16.327.5
Sanquan Food -A002216 CH 10.9812.211.110.41-14.725.8
Gcl Newenergy451 HK 0.410.4612.20.4-1325.2
Chinese Strategic Hldgs Ltd8089 HK 2.072.3513.52.08-11.525
Bank Of Qingd-H3866 HK 5.215.8512.35.2-11.123.4
Yunnan Energy -A002053 CH 17.1719.1911.817.05-11.222.9
Source: Bloomberg, GMT Research

Appendix 3 Asian companies with largest likely window dressing YE15

Short NameTickerPrice 21/12/2016 (LCL)Price 31/12/2016 (LCL)Before New Year (%)Price 12/01/2017 (LCL)After New Year (%)Total Change (%)
Shenzhou Yiqia-A000606 CH8.618.46114.712.9-30.1144.8
Hengtou Securi-H1476 HK47754.06-42117
Unilumin Group-A300232 CH8.1215.6592.712.76-18.5111.2
Shanghai Conan-A300061 CH13.7124.9982.319.05-23.8106
Jiangsu Dagang-A002077 CH11.419.957515.95-20.195.1
Changshu Tiany-A300342 CH14.5623.596216.41-30.492.5
Btg Hotels Gro-A600258 CH15.5824.9159.920.97-15.875.7
Beijing Shiji-A002153 CH39.4750.3327.531.68-37.164.6
Pilbara MineralsPLS AU0.220.3245.50.26-18.864.2
Guangfu Holdin-A002102 CH3.324.9649.44.35-12.361.7
Boai Nky Pharm-A300109 CH84.75104.0522.865.1-37.460.2
Fdg Kinetic Ltd378 HK0.921.26371-20.657.6
Zhejiang Centu-A002602 CH25.834.053225.36-25.557.5
Shenzhen Capch-A300037 CH23.5329.2524.319.96-31.856.1
Beijing Wkw Au-A002662 CH8.651127.27.9-28.255.3
Shanghai Lonye-A603003 CH23.9829.8124.320.65-30.755
All Winner Tec-A300458 CH48.9559.421.339.83-32.954.3
Hefei Meiya Op-A002690 CH34.4340.3517.225.58-36.653.8
Hebei Cangzhou-A600230 CH12.6315.5122.811.21-27.750.5
Suzhou New Dis-A600736 CH8.1511359.29-15.550.5
Xiamen Meiya -A300188 CH43.5250.716.533.48-3450.5
Gohigh Data-A000851 CH13.3715.6316.910.49-32.949.8
Fujian Start-A600734 CH20.9424.3216.116.54-3248.1
Sino Wealth El-A300327 CH27.0932.8221.224.06-26.747.8
Enjoyor Co Ltd-A300020 CH20.5324.5219.417.59-28.347.7
Dong Yi Ri She-A002713 CH26.753219.623.24-27.447
Xiamen Kehua-A002335 CH39.644821.135.58-25.947
Infund Hld Co002141 CH8.179.0310.55.76-36.246.7
Wuxi Taiji Ind-A600667 CH10.0911.1510.57.16-35.846.3
Shenzhen Sdg I-A000070 CH14.2816.0512.410.64-33.746.1
Travellers InterRWM PM3.494.426.13.52-2046.1
Net263 Ltd-A002467 CH18.2320.9915.114.53-30.845.9
Shandong Sinoc-A300285 CH19.822.7514.915.75-30.845.7
Hangzhou Lian-A002280 CH22.2624.5610.316.08-34.544.9
Zhejiang Wolwo-A300357 CH45.550.711.433.89-33.244.6
China Calxon G-A000918 CH5.66.414.34.47-30.244.4
Chengdu Tianx-A000710 CH36.8840.8810.827.3-33.244.1
Pou Sheng Intl3813 HK1.631.8614.11.31-29.643.7
Hongtu Technol-A002101 CH24.4428.315.820.43-27.843.6
Chinese Estates127 HK22.32616.619.04-26.843.4
Shanghai Feil-A600651 CH12.8614.7514.710.6-28.142.8
Zhejiang Cryst-A002273 CH24.5127.0710.418.52-31.642
Anhui Sinonet -A002298 CH17.119.2112.313.51-29.742
Zhejiang Vie S-A002590 CH21.4924.915.918.52-25.641.5
Ocean's King L-A002724 CH15.818.641814.31-23.241.2
Ningbo Shansha-A600884 CH17.5319.6211.913.91-29.141
Gansu Gangtai-A600687 CH21.4323.581016.4-30.440.5
Zhongchang Big-A600242 CH14.7517.2817.213.25-23.340.5
Jiangsu Dewei-A300325 CH7.438.32125.96-28.440.3
Hangzhou Boil-A002534 CH8.610.7324.89.06-15.640.3
Shang Material-B900927 CH0.891.0922.50.9-17.439.9
Qingdao King -A002094 CH27.8831.1511.722.43-2839.7
Alpine Elec Inc6816 JP1535189823.61603-15.539.2
Cosco Shipping ICOS SP0.40.46150.35-23.938.9
Jiangsu Yunyi -A300304 CH7.017.7911.15.65-27.538.6
Montnets Rongx-A002123 CH22.7125.6512.919.1-25.538.5
Hubei New Bldg-A600293 CH8.729.7812.27.21-26.338.4
Nanhua Bio-Med-A000504 CH26.929.9811.421.93-26.938.3
Heilongjian -A601188 CH4.955.7816.84.54-21.538.2
Anhui Truchum-A002171 CH10.311.9916.49.39-21.738.1
Xingmin Intel-A002355 CH16.2220.0623.717.17-14.438.1
Wuxi Huaguang-A600475 CH17.6820.691716.35-2138
Shenzhen Cente-A002733 CH27.4930.6111.322.55-26.337.7
Jm Financial LtdJM IN37.7547.2525.241.35-12.537.7
Ningbo Shuangl-A300100 CH27.0631.3215.724.46-21.937.6
Youngy Co Ltd-A002192 CH29.4433.3313.225.2-24.437.6
Yiwu Huading N-A601113 CH9.7411.1214.28.52-23.437.5
Luoyang Longhu-A300263 CH12.4814.4515.811.31-21.737.5
Giti Tire Corp-A600182 CH19.222.2315.817.43-21.637.4
Lingnan Land-A002717 CH38.843.913.133.45-23.836.9
Inspur Softwar-A600756 CH46.6951.4310.237.7-26.736.8
Shang Shenda-A600626 CH15.0316.541012.22-26.136.2
Gni Group Ltd2160 JP16219117.9157-17.835.7
Global MediacomBMTR IJ905110021.5945-14.135.6
Shenzhen H&T-A002402 CH10.3111.3610.28.54-24.835
Goldwin Inc8111 JP5180626020.85390-13.934.7
Cachet Pharmac-A002462 CH44.6150.6213.540.13-20.734.2
Innuovo Techno-A000795 CH6.917.711.45.95-22.734.2
China Grand Au-A600297 CH8.959.8810.47.54-23.734.1
Guangzhou Heng-A000531 CH10.9212.3513.19.79-20.733.8
Guangdong East-A300310 CH19.1821.6412.817.11-20.933.8
Guangdong Orie-A002167 CH10.781211.39.38-21.833.2
Beijing Vanton-A600246 CH6.667.614.16.18-18.732.8
Joeone Co Ltd-A601566 CH20.3322.8612.418.26-20.132.6
Hisense Kelon -H921 HK3.534.13173.49-15.532.5
Xinjiang Ba Yi-A600581 CH8.679.8513.67.99-18.932.5
Tianze Informa-A300209 CH23.4525.81020.05-22.332.3
Chongqing Thre-A600116 CH6.237.2316.16.06-16.232.2
Shang Jinjiang-B900914 CH2.132.3811.71.9-20.231.9
Sapura Energy BhSAPE MK1.692.0219.51.77-12.431.9
Xi'an Haitiantia8227 HK0.440.513.60.41-1831.6
Hang Zhou Grea-A002444 CH18.620.711.316.72-19.230.5
Zall Group Ltd2098 HK1.691.9817.21.72-13.130.3
China Vast Indus6166 HK2.813.213.92.68-16.330.1
Hunan Dakang-A002505 CH3.914.4714.33.77-15.730
China Overseas G81 HK2.853.1911.92.64-17.229.2
Cleanaway WasteCWY AU0.680.7814.70.67-14.128.8
Beijing Tian-A600161 CH23.9126.8712.422.55-16.128.5
China Evergrand3333 HK6.196.8210.25.58-18.228.4
Whitehaven CoalWHC AU0.630.711.10.58-17.128.3
Meidu Energy-A600175 CH6.317.2314.66.27-13.327.9
Shandong Hi-Sp-A000498 CH7.918.9713.47.69-14.327.7
Shanghai Mecha-B900925 CH2.
Zhejiang Meida-A002677 CH12.3213.6410.711.36-16.727.4
China Datang C-H1798 HK0.880.9710.20.81-16.526.7
Asia Pacific Tel3682 TT10.211.6514.210.25-1226.2
China Hongqiao1378 HK3.994.6115.54.12-10.626.2
Is Dongseo Co Lt010780 KS399504450011.438000-14.626
Vector6058 JP64772011.3614.67-14.625.9
Huabao Intl336 HK2.472.8314.62.51-11.325.9
Beijing Urban-H1599 HK4.535.0210.84.27-14.925.8
Ausdrill LtdASL AU0.220.2513.60.22-1225.6
Iluka ResourcesILU AU5.416.1313.35.38-12.225.5
Hosiden Corp6804 JP62068410.3581-15.125.4
Hengten Networks136 HK0.520.5811.50.5-13.825.3
Sinofert Holding297 HK1.191.3210.91.13-14.425.3
Kingnet Networ-A002517 CH27.2530.2711.126-14.125.2
Syrah ResourcesSYR AU3.393.8613.93.43-11.125
Zhejiang Medi-A600216 CH11.1112.3711.310.7-13.524.8
Sawit SumbermasSSMS IJ1720195013.41730-11.324.7
Alumina LtdAWC AU1.041.1510.60.99-13.924.5
Zhejiang Hisoa-A002099 CH10.4411.9314.310.73-10.124.3
Chicony Power6412 TT36.8341.5812.936.98-11.124
Shanghai Runda-A603108 CH17.191910.516.54-12.923.5
Cpmc Holdings906 HK4.344.7910.44.17-12.923.3
Tianjin Port Dev3382 HK1.151.2912.21.15-10.923
Bluescope SteelBSL AU44.4310.83.91-11.722.5
Source: Bloomberg, GMT Research



[1] GMT: FULLSHARE: Manufactured bubble, 27 Apr 2017

[2] GMT: CHINA GREENLAND BG: The Government’s unpaid gardener, 30 Mar 2017

[3] As David Webb explained in a recent article. See

[4] HKEx: What is Stock Connect?

[5] FT: Hanergy’s Li Hejun leaps to top of Forbes’ China rich list, 5 Mar 2015

[6] FT: Hanergy, The 10-minute trade, 25 Mar 2015

[7] SFC: SFC obtains disqualification and court orders, 4 Sep 2017

[8] Webb-site Reports: The Enigma Network: 50 stocks not to own, 15 May 2017

[9] Bloomberg: ‘Enigma Network’ Crash Spurs Hong Kong’s Largest Financial Raid, 13 Oct 2017

[10] SFC: Court of Appeal upholds SFAT’s ruling on SFC’s disciplinary action against Moody’s over Red Flags Report, 8 Jun 2017

[11] Webb-site Reports: SFAT’s red flag on Moody’s chills negative research, 8 Apr 2016

[12] SFC: Market Misconduct Tribunal bans Andrew Left of Citron Research from trading securities in Hong Kong, 20 Oct 2016

[13] Webb-site Reports: Andrew Left and the right to be wrong, 23 Oct 2016

[14] See Listing Rules 10.06

[15] Stock Connect allows international and Mainland Chinese investors to trade securities in each other’s markets through the trading and clearing facilities of their home exchange

Previous Newsletters:Date
Asia’s most manipulated market is…8 Feb 2018
SINOPHARM: Not what it seems27 Sep 2017
Hong Kong needs short-sellers14 Aug 2017
CHINA GREENLAND (1253 HK): How Bizarre, how bizarre...24 May 2017
ZTO EXPRESS: Downgrade risks rise29 Mar 2017
CHINA EVERGRANDE: Are its auditors asleep?17 Jan 2017
Aircraft leasing07 Dec 2016
All roads lead to China26 Oct 2016
Related Party Transactions13 May 2016
China: If you think things are bad now...11 Mar 2016
Corporate Leverage10 Sep 2015
Noble Group: What new disclosure?08 May 2015
Noble Group's Financial Alchemy08 Apr 2015
Japan's Reluctant Consumer13 Feb 2015
China's last hurrah08 Jan 2015



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