‘Buyers Beware’

Alder’s comments came amid broader complaints that GEM, conceived in 1999 with the tagline “A ‘Buyers Beware’ Market for Informed Investors,” failed to attract sufficient listings. The exchange was targeting a consultation on GEM by year-end, Graham said in June. That time frame now looks unlikely with the exchange and regulator busy with a consultation on changes to IPO application procedures.

“We have done some work on GEM. We are discussing with our regulator our thoughts and we are not yet ready for discussion with the market,” an HKEX spokesman said in an e-mail on Tuesday. “We will update the market in due course.”

Luen Wong’s tightly controlled shares may also have played a role in the price gains. The firm’s two founders own 75 percent of the company, the maximum allowed under exchange rules. In April, the Hong Kong regulator issued a warning about the stock because 96 percent of its outstanding shares were in the hands of the controlling shareholders and 19 other investors. Wafer-thin trading volumes, with daily trading averaging roughly 1 million shares on 312 million publicly-floated shares, mean it’s vulnerable to extreme moves.

The shares are also free from shorting, which can dampen outsized gains. Under the city’s rules, companies can be eligible for short selling if market value is at least HK$3 billion ($387 million) and total trading turnover is at least 60 percent of the company’s capitalization.

Among the investors in Luen Wong is China Environmental Energy Investment Ltd., which bought a 1.43 percent stake for HK$124.5 million in July, according to filings. The firm’s 2016 annual report named 10 mostly thinly-traded stocks held in a HK$805 million portfolio. China Environmental Energy has fallen 68 percent in the past 12 months.

A second listed investor, China New Economy Fund Ltd., held a 0.65 percent stake in Luen Wong as of June, according to an interim results report. The seven other Hong Kong stocks in its portfolio rose an average 7.8 percent over the past 12 months, though China New Economy is down 66 percent during that period.

Questions e-mailed and faxed upon request to China New Economy were not returned. A spokeswoman for China Environmental Energy did not reply to queries seeking comment.

Government Contracts

Luen Wong, which trades at 2,196 its earnings, may have at least one thing going for it: the recent boom enjoyed by the engineering and construction sector in Hong Kong. Years of bumper revenues cemented by big-ticket government contracts and a surge in new home developments has buoyed the industry. Six of Luen Wong’s peers listed this year, with at least 20 more awaiting approval, according to Bloomberg and stock exchange data. Last year, 21 firms from the sector raised $2.65 billion in IPOs.