Investing culture: A tale of two cities

Of course, a spectacular fall from grace, or sob story, is a lot more sensational when juxtaposed with the shiny new toy — be it the latest crypto, high-margin products pushed by the financial institutions, or even nickel scams offering hope that springs eternal — in glistering distant shores.

In so doing, have we dug ourselves into a hole where through collective misery, some quit and go elsewhere, perpetuating a vicious cycle?

Where are the pots of gold that have enabled legions of educated, silent investors to quietly live off passive income, or profit from the market for holidays and early retirement? Is our Singaporean culture of being champion complainers irreversible?

This is the first of a three-part column on this topic examining the ingredients that make up this toxic self-flagellating cocktail, under an acronym that will be familiar to investors and finance professionals alike — CKA. (Just to be sure, the actual CKA stands for Customer Knowledge Assessment, which is required to be performed by financial institutions on their clients who disclaim their rights away.)

This week, we look at: Culture: A tale of two cities. This will be followed by Knowledge: Lies, damned lies and statistics; then Assesment: Who’s fault is it anyway?!

Market darlings — Love them, but leave them before they leave you

In early 2015, everyone I met in a week-long trip to Hong Kong — institutional and retail brokers, corporate finance bankers, analysts, proprietary traders, hedge fund managers, down to retail investors in the cha can tang’s on Wellington Street in Central — were talking only about one stock: 566.HK — Hanergy Thin Film Power Group.

In Cantonese, the stock code (retail punters in North Asia only recall the code and not the stock name or even what they do, when they speculate) sounds like “never ever go down”. Indeed, it never did (almost) on a two-year run that saw it reach a market capitalisation of HK$300 billion ($60 billion). In March 2015, following a 75% surge in its share price in just three days, its founder Li Hejun was crowned China’s richest person.

Photo: Business Insider

Starting from early 2015, the Financial Times (FT) did a series of exposé, including one that hit the front page. Among others, FT questioned the “breakneck” growth reported by the company, and looked at how Hanergy tapped funding from China’s then-notorious shadow banking system, and how it claimed to make net margins of 50% even when other Chinese solar panel makers were mired in the red. On May 20, 2015, the stock blew up. It plunged 47% in just 24 minutes.

As the elevator went down, the HK$300 billion mirage disappeared. Its price collapsed so swiftly, leaving no escape hatches for even the dim sum trolley ladies of Mongkok. The stock was suspended for five years, and the Securities and Futures Commission of Hong Kong launched a probe. It was eventually de-listed in 2020.

Interestingly, this cautionary tale of pump and dump has largely been forgotten.

Hanergy TFP’s HK$300 billion, or $60 billion, in vapourised market value is 7.5 times that of the $8 billion in paper market capitalisation wiped out in the October 2013 rout of three Singapore penny stocks: Blumont Group, Asiasons Capital and LionGold Corp (collectively dubbed the BAL shares). The long-running trial of the two masterminds started in March 2019 and ended on June 30, and the verdict is being awaited. A third co-accused has pleaded guilty and testified on behalf of the prosecution.

Relatively speaking, even at their overvalued peaks, the BAL shares can only be rightly described as small-caps or at best, mid-caps. In contrast, Hanergy TFP was going to be a key constituent of North Asian indices, where passive fund managers will be forced to buy as it was a big cap worthy of FT’s front page.

Culture shock

Back in Hong Kong, in July 2015, I attended a dinner with many market actors who were caught in the Hanergy debacle, willingly or otherwise. A memorable part of the dinner conversation was descriptions of a lavish, all-expense-paid party, whose highlight was playing polo in Mongolia. The attendees were supposedly analysts and bankers persuaded to help the street gain confidence.

Even if they did not attend that party, everyone in the room had exposure. They had either extended margin lending to punters of Hanergy, or had borrowed to invest in the stock. As a naive sang ka por zai (Singaporean young man), I asked the stupid question: “How’s everyone with the blow-up?”

The lesson I received was worth reflecting on. “That’s the problem with you lot in Singapore,” I was told. In stock investing, there are booms and there are busts. There are gains and there are losses. Whether the market is developed or emerging, if you get 5/10 correct, you are already a hero. Even more so if you can let your winners run a bit longer and cut your losses a bit earlier.

In Hong Kong, you only talk about your winners. You can be the one owning the bungalows at the top of Victoria Peak, or you can be a mere punter trading via the small bucket tail of 500-plus retail brokerages. Either way, you never talk about the one that got away. Punters and investors look for the next story and opportunity.

Sure, some people get carried out, but that’s the market — it moves on. There is vibrancy, even as protests on Lehman Mini Bonds at the HSBC building in Central continued on in its own corner for years after 2008. Hanergy’s HK$300 billion wipeout has become a footnote in history. The market has moved on and when it was delisted eventually in 2020, there was hardly a mention in the news.

Here in Singapore, the winners keep quiet and we hardly talk about them. However, the dead horses are flogged continuously as a salubrious tale — whether as calls to improve investors’ education, lamenting about corporate governance, calling for more regulation, or for self-rationalisation as to why there is less interest and liquidity in local stocks (as it appears to some). As my Hong Kong counterparts have correctly pointed out, we get stuck in a groove by talking the market down ourselves.

Earlier in August, the Hong Kong markets had yet another period of rock and roll. Year to date, the Straits Times Index (STI) had outperformed the Hang Seng Index, the Hang Seng China Enterprises Index and Hang Seng TECH Index — with less volatility to boot.

Yet, there was a steady parade of editorials, articles, blogs, tweets and retweets from experts and pundits bemoaning the same old themes: serial underperformance of the STI (no matter the irony); “I lost a lot of money on SGX”; who is to blame for selling Hyflux’s perpetual securities; ramifications of the 2013 BAL saga, and so on.

Or, resurfacing the S-chips debacle from the last decade — which came off its “peak” after 2008 — when the tide of the Global Financial Crisis carried everything out.

Fortunately, the Clob (Central Limit Order Book) episode of 1998 is not fashionable talk anymore.

Quo vadis?

Hanergy is not unique. Just look at Hong Kong’s infamous “Enigma Network” — dozens of small caps with cross-holdings that suffered huge, sudden losses of around 90% in June 2017. Such is the mystery of manipulation that is inflicting many small caps. You don’t have to look at the Pink Sheet OTC markets in the US, or as far back as 2001’s Enron. Just look at Luckin Coffee, Wirecard (whose troubles surfaced last year), the debut of Didi Global in June this year, the meme stock phenomenon earlier this year, and more recently, the China tech meltdowns.

True, every retail investor who loses money matters. It is someone’s savings after all. However, let’s have some context: the $8 billion market cap lost from BAL is less than 1% of Singapore’s total market capitalisation then. Around 180 trading accounts were involved — and most of which were beneficially held by the same individuals who are now pointing fingers at one another. Yes, quite a few remisiers and trading representatives were carried out in the wake of the crash, but the wider damage in terms of actual money lost was relatively contained.

But how do we move on as a marketplace if the power of the Fourth Estate, supercharged with social media, refuses to forget? Do we send our investors and capital to support other markets, or rediscover our mojo here? On a per capital income and wealth measure, we rank right up there!

How do our SMEs get equity financing at IPO or post-listing liquidity to grow to become regional champions and global unicorns, if we, as investors, are promiscuous? We need to mature as individuals and as a marketplace.

We need to take responsibility for our own choices if they go wrong. Do some homework, for a start. For example, read the Small Change investment books written by retired journalist Goh Eng Yeow. As David Gerald, founder, president and CEO of Securities Investors Association of Singapore, quips, SIAS actually stands for “Smart Investors Always Succeed”.

Perhaps put your money to work here first, before moaning about liquidity the next time a journalist calls. After all, are you trading or investing $5,000 or $5 million per stock? If it is the “k” and not the “m”, let’s just get on with it.

Chew Sutat retired from Singapore Exchange (SGX) in July this year as senior managing director, and had been a member of SGX’s executive management team for 14 years. He serves on the board of ADDX and chairs its listing committee. Chew was awarded FOW Asia Capital Markets Lifetime Achievement Award this year.

Photo: Bloomberg