Saturday, December 05, 2009

Expensive Oranges

A company, Asian Citrus, that grows oranges gets listed in the Hong Kong Stock Exchange. Just before it was listed for trading, its net asset value per share was given as HK$42. It started trading at HK$51, on 26th November, not unexpectedly.

Someone pointed out then that the stock had just gone through a 10-for-1 split, i.e., that one old share has been split into 10 new shares, less than one month before trading in Hong Kong. So the net asset value should be something closer to HK$4.2, not 42. It seemed that most of the people who were buying then were not aware of the split.

By the time the exchange halted the trading, two hours had passed, and 12 million shares had changed hands. It was trading at HK$19.94 when trading was suspended. Last time I heard, it was trading at HK$6.71.

The company stressed that the true value per share was disclosed in the listing document. But it was relegated to the fine print, and obviously many people missed it.

The whole thing would be worth a laugh except for those who bought the shares thinking the assets were worth HK$42. Is it simply negligence? Or is there something more sinister behind it? Surely this kind of thing is not worthy of an international financial centre.

On a more personal level, the cynic in me feels people are inherently selfish and will take advantage of any opportunity to exploit others. The stock market is not kind to the innocent. The ugly side of humanity is laid bare here.

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