Obscure China Stock Plunges 95% After Mystery 13,000% Rally

(Bloomberg) — A frenzied rally in the shares of a little-known Chinese garment manufacturer, which drew comparisons to the wild surges seen by AMTD Digital Inc. and Magic Empire Global Ltd., has unraveled almost as quickly as it arrived.

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Addentax Group Corp. tumbled 95% in US trading Thursday, eating away nearly all the massive gains its shares saw on their trading debut a day earlier when they surged 13,000%. The stock’s sudden decline sparked a $19 billion wipeout in market value. That came after its value had ballooned to more than $20 billion on Wednesday, which at the time made it bigger than about a third of S&P 500 Index members.

Its wild ride triggered another flurry of volatility-related halts Thursday, including one less than five minutes into its second day of trading, after more than 20 were triggered yesterday.

Addentax, which lists garment manufacturing and logistics services among its key businesses, is at least the eighth firm this year from Hong Kong or China to experience similarly surprising moves following initial public offerings in the US. The Nevada-based holding company did not immediately respond to an email seeking comment and calls to numbers listed on its website went unanswered.

AMTD Digital and Magic Empire, both of which are financial services companies based in Hong Kong, made headlines earlier this quarter as shares mysteriously soared by thousands of percent despite opaque fundamentals, only to see the rallies fizzle out. AMTD Digital Inc. at one point became bigger than Goldman Sachs Group Inc.

“The driving force behind the Addentax Group’s price seemingly deliberately duplicates the story of HKD and MEGL, which also experienced an unprecedented share-price frenzy recently,” said Hebe Chen, an analyst at IG Markets Ltd.

She said the commonality between them includes the fact that they all come from traditional industries and have not-so-stellar financials.

On paper, Wednesday’s rally meant that the stakes of Chairman and Chief Executive Officer Hong Zhida, and his brother Hong Zhiwang — who is a director — amounted to some $1.3 billion in total. CEO Hong owns 4.8% of Addentax’s common stock, while his brother has 1.6%, according to the prospectus.

Listed originally in 2015, when it identified itself as a shell company, Addentax in December 2016 acquired a key stake in its current major operating entity called Yingxi Industrial Chain Group Co. The company was trading on an over-the-counter market for US stocks called OTCQB Marketplace prior to its listing on the Nasdaq this week.

According to its prospectus, Addentax used the same underwriter — Network 1 Financial Securities Inc. — as Magic Empire.

Modest Revenues

Like Magic Empire and AMTD Digital, Addentax has modest revenue that allows for relaxed disclosure requirements under US laws. For the year ended March, revenue dropped 49% to $12.7 million even as the firm turned a profit, according to the prospectus.

That compares to an average revenue of about $40 billion for S&P 500 members that have a market value of more than $20 billion, data compiled by Bloomberg showed.

Chen from IG Markets added that it was “more than likely” that Addentax would follow the path of AMTD and Magic Empire. Those two stocks have lost more than 90% from their respective peaks.

(Updates chart, Thursday trading details.)