Shortseller and MSCI floor ArtGo and Kasen

Business | Bloomberg and Kevin Xu 22 Nov 2019

Two Hong Kong-listed stocks saw billions of dollars in market value wiped out yesterday.

Chinese furniture maker Kasen International (0496) plunged 90.07 percent to HK$0.46 before the stock was suspended in Hong Kong, after shortseller Blue Orca Capital raised concerns in a report that described the company's Cambodia investments as "illusory".

It also questioned the firm's reported capital expenditures and transactions between the company and the chairman's family members.

The shortseller valued Kasen at HK$0.67 per share, an 85 percent downside from its last traded price of HK$4.58.

Kasen said the report contained "untrue and misleading information," without giving details, in an exchange statement after its shares were suspended.

The plunge wiped out around US$787 million (HK$6.14 billion) from the stock's value.

Kasen turned a profit last year after making losses for two consecutive years, according to data compiled by Bloomberg. The company generated about 82 percent of its revenue from Hong Kong and mainland China and 15 percent from the U.S. last year.

Meanwhile, ArtGo (3313), which soared almost 3,800 percent this year in the world's biggest gain among companies with a market capitalization of at least US$1 billion, lost nearly all of that value within minutes yesterday as investors reacted to MSCI's decision to drop plans to add the company to its indexes.

The stock wiped out more than US$5.7 billion in value before trading was suspended.

Its shares slumped 97.94 percent to HK$0.3 on Thursday.

MSCI, which had announced its intention to include ArtGo just two weeks ago, said in statement on Wednesday that it would no longer do so after "further analysis and feedback from market participants on investability." An ArtGo representative said the company, a marble producer that has been expanding into other businesses such as real estate, couldn't immediately comment.

ArtGo's rally had flummoxed local market veterans, with prominent activist investor David Webb warning in September that the stock was a "bubble." Its surge was the latest in series of extreme, unexplained swings in Hong Kong that have cast the city's financial markets in an unflattering light and led some observers to argue that MSCI and its peers should prevent such stocks from entering indexes that guide investments worth trillions of dollars.

"It's good that MSCI is listening to what market participants are saying," Daniel So, a strategist at CMB International Securities Ltd., said by phone. "It's positive for the health of the market. It's hard to avoid adding some stocks with bubbles into the benchmark if we just focus on data like market cap. So it's good that MSCI is doing case-by-case studies."

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