Hong Kong Has New Boom-to-Bust Stock Mystery: Digital Domain
June 3, 2015 — 2:10 PM SGTUpdated on June 3, 2015 — 6:39 PM SGT
Digital Domain Holdings Ltd. became the latest Hong Kong stock to tumble after surging more than 500 percent in a matter of months, following declines in Hanergy Thin Film Power Group Ltd. and Goldin Financial Holdings Ltd.
The company, which owns a majority stake in the visual-effects producer for Hollywood movies including Iron Man 3, sank as much as 61 percent in Hong Kong Wednesday without an immediate explanation. The stock closed 41 percent lower amid record volume. Digital Domain was unaware of any reason for the drop, according to a regulatory filing, while the company declined to immediately comment in response to questions.The shares surged more than 1,500 percent this year through a May 19 peak, valuing the company at about $3.5 billion, or more than Hong Kong builder Hopewell Holdings Ltd. Wednesday’s plunge follows one-day declines of more than 40 percent in Hanergy and Goldin Financial last month. Speculation in Hong Kong-listed companies has increased since the city established an exchange link with Shanghai, according to shareholder activist David Webb.
“These kinds of stocks have no fundamentals and only rumors are moving the prices,” said William Fung, vice president at Southwest Securities Co. in Hong Kong. “In one day the dream can be gone.”
Digital Domain was nominated for an Oscar for its work on X-Men: Days of Future Past this year, but failed to win. The company had sales of HK$850 million ($110 million) in 2014.
As well as the media entertainment business, Digital Domain also has a property investment arm and a unit that trades metal scraps such as copper wire between Hong Kong, mainland China and other countries, according to its annual report.
Company History
Digital Domain’s previous incarnations under the 547 stock ticker in Hong Kong include Mansion Holdings Ltd., a fire prevention and fire-fighting systems company, and Sun Innovation Holdings Ltd., which scrapped a plan to buy mining assets in 2012.
Digital Domain Media Group Inc., the special effects company co-founded by Titanic director James Cameron, went public in the U.S. in November 2011, pricing shares at $8.50 apiece, before filing for bankruptcy less than a year later. A partnership of Chinese and Indian film companies bought the business, and then sold it to Hong Kong-listed Sun Innovation in March 2013. Sun Innovation renamed itself Digital Domain Holdings in December of that year.
Hanergy, Goldin
Hanergy’s Hong Kong shares tumbled 47 percent on May 20 before trading was suspended, erasing about $19 billion of market value and ending a more than six-fold surge over the previous 12 months. The city’s markets regulator confirmed on May 28 that it’s investigating the solar company.
A day after Hanergy’s plunge, Goldin Financial Holdings Ltd. and Goldin Properties Holdings Ltd., controlled by billionaire Pan Sutong, slumped more than 40 percent. Before the rout, the two stocks soared more than 300 percent in 2015 for the biggest gains on the Hang Seng Composite Index.
Virtually no analysts tracked by Bloomberg covered any of the four companies.
“The level of speculative activity in the market varies over time and at the moment it’s very high,” said Webb, the Hong Kong-based founder of Webb-site.com. “It’s partly because of the expected arrival of mainland capital from the through train.”
AsianExtractor: Unearthing Accounting Fraud in Asia 