June 28, 2017 / 3:24 AM / a year ago

HK's second board hits fresh low amid market jitters

HONG KONG, June 28 (Reuters) - Hong Kong’s second board hit a fresh record low on Wednesday, with shares of penny stocks plunging as investors raced to reduce their exposure to the highly volatile market.

Greaterchina Professional Services Ltd was among the biggest losers, with its shares diving 30 percent after falling 93 percent on Tuesday.

Greaterchina Professional Services was among scores of stocks named in a report by activist shareholder David Webb six weeks ago titled “The Enigma Network: 50 stocks not to own”.

The list included several stocks listed on Hong Kong’s second board, or Growth Enterprise Market (GEM), which was down just over 1 percent on Wednesday, having slumped nearly 10 percent on Tuesday to close at a record low.

Speaking to Reuters on Wednesday, Webb said it was unclear what had triggered the sell-off in the “Enigma Network” stocks.

“I can only speculate, but it’s possible margin calls have been triggering the sell-off – it’s possible the brokers involved have been told to stop lending against those shares,” he said.

“At the moment it’s unclear what happened – maybe the people operating the network have decided to dump and run.”

Hong Kong’s second board has seen high levels of volatility due to very concentrated shareholdings and concerns have grown over the quality of companies listed on the board.

Many stocks have jumped sharply on the first day of trading, fuelling fears over market manipulation and prompting the city’s regulators to issue warnings to investors.

The exchange issued a denial following speculation on Tuesday that it was planning to delist thinly traded shares.

“We are aware of market rumours that HKEX had proposed earlier that it would force ‘zombie stocks’ which were traded below $1 with inactive transaction to delist. We would like to clarify that the above rumour is completely unfounded,” the exchange said on Wednesday.

$1 = 7.8000 Hong Kong dollars Reporting by Donny Kwok, Michelle Price and Elzio Barreto,; Editing by Anne Marie Roantree & Simon Cameron-Moore

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