Meitu's Wild Stock Trading Has Investors Blaming Mainland Links

  • Developer of selfie app saw wild price swings on Monday
  • Other shares added to stock connect have seen similar moves

Hong Kong’s latest stock-market drama is putting a spotlight on the volatile trading patterns of Chinese investors who use the city’s cross-border exchange links.

The links’ most-active stock on Monday was a beauty-enhancing selfie app developer called Meitu Inc. After the shares surged as much as 28 percent over the course of the day, they tumbled as much as 33 percent in the final 90 minutes of trading. Hong Kong’s Securities and Futures Commission has requested trading records of Meitu shares from brokers at least three times since January, the Hong Kong Economic Journal reported on Tuesday, citing unidentified people.

The moves were triggered by heavy trading from mainland investors, according to Mirabaud Asia Ltd., and reflect a pattern that’s becoming more prevalent amid increased Chinese money flowing into the former British colony. Meitu’s swings in the two weeks since it was added to Hong Kong’s stock-trading links with exchanges in Shanghai and Shenzhen raise questions about how the city will cope with an influx of investors who often buy and sell on a whim.

“With southbound connect, certain elements of the Hong Kong market have become like China,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud. “As a trader, you wouldn’t go near them. The more we see trading patterns in stocks like we did in Meitu, the more likely the SFC and the exchange will push for stricter surveillance.”

To read Bloomberg Gadfly’s take on Meitu’s stock move, click here.

Meitu said it hasn’t been contacted by regulators in relation to any such investigation and wasn’t in a position to provide further comment. Spokesmen for both Hong Kong Exchanges & Clearing Ltd. and the SFC declined to comment. The stock was down another 10 percent as of midday in Hong Kong.

Meitu is set to announce its 2016 earnings on March 24, and said it expects further losses this year. The shares soared 78 percent through Friday from March 6, when it was added to the mainland links. Meitu’s 30-day volatility on Monday rose to the highest since its December debut.

The company, which has reported losses since 2013, hasn’t filed any announcements to Hong Kong’s stock exchange regarding Monday’s stock moves.

Meitu was the most traded southbound stock on Monday, with mainland investors accounting for about 30 percent of the HK$3.8 billion ($489 million) volume, according to data compiled by Bloomberg. That helped push it to become the third most traded company by value in Hong Kong that day, just behind blue-chip names Tencent Holdings Ltd. and China Mobile Ltd.

The December start of second stock link, this time with Shenzhen, opened direct access for mainland investors to Hong Kong-listed mid-cap stocks. The flows are affecting trading in the city by increasing volatility and intraday volume patterns in popular names, Instinet Pacific Services Ltd. said in November.

Mainland investors bought a net 13 billion yuan ($1.9 billion) of Hong Kong stocks last week through exchange links, the most this year. Their net purchases totaled 3.73 billion yuan on Monday.

IGG Inc. and Zhou Hei Ya International Holdings Co., which were also added to the stock links this month, have seen higher price swings in recent weeks. IGG shares jumped 29 percent from March 6 through Monday, while Zhou Hei Ya’s gauge of 30-day volatility has risen to the highest this year.

— With assistance by Jeanny Yu, Yuan Gao, Amanda Wang, Michael Patterson, and David Ramli

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