The mysterious rush for Hangxiao Steel Structure's shares on the Shanghai bourse ebbed yesterday, falling by the permissible limit of 10 percent as the authorities began to look into its sudden fortune.
Hangxiao's shares closed at 12.41 yuan after its trading was suspended for one hour in the morning.
The share had traded only for a minute on Wednesday when it was suspended after the China Securities Regulatory Commission (CSRC) announced that it had started investigating the unusual price movement.
"It's good that the government watchdog is taking the initiative to investigate if irregular trading activities were behind the price surge in past weeks," said Liu Zhenghua, an analyst at Changjiang Securities. "The whole thing smells fishy."
What troubles Liu and other stock market analysts is the largely unexplained 77 percent rise in Hangxiao's share price in the six days leading up to March 13. On that day, the company issued a statement to the Shanghai Stock Exchange saying that it had signed a contract worth 34.4 billion yuan with Hong Kong-based China International Fund Ltd for a construction project in Angola, Africa.
"I am sure someone leaked the information before the announcement," Liu said. "Some people must have profited from insider trading."
The company's shares have continued to surge ever since, going up by 214 percent to 13.01 yuan on Tuesday.
The CSRC investigation seems to have helped check the speculative fever, analysts said.
"Investors are taking a closer look into the Angola contract instead of blindly snapping up the shares," Liu said.
Analysts noted that the contract amount is about one-tenth of Angola's gross domestic product. They find it a little odd that the country is undertaking a project of this scale.
Hangxiao issued a three-page statement on March 26 disclosing the details of the project. In the latest statement issued on Wednesday, the company noted that, among other things, there was no provision to protect the company against a breach of contract by the other party.
The statement also noted that the company's subsidiaries had entered into different construction contracts in various parts of China worth a total of 206.4 million yuan.
"The company should have issued a cautionary statement much earlier to alert investors to the potential risk of such a large project in a foreign country," Liu said.
(China Daily April 6, 2007)