A 32,000% rise in a little-known stock ends with a $175 billion drop

(Bloomberg) — Even after the retail frenzy that drove GameStop Corp. to become the world’s hottest stock and the dog-themed cryptocurrency to gain billions in value, the whirlwind of trading in an obscure financial business in Hong Kong stands out as spectacular.

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The rapid rise of AMTD Digital Inc. — a barely profitable financial services firm — is a story that, while reminiscent of last year’s meme craze, is even more mysterious. In a move that stunned the financial community, the company’s stock soared in less than three weeks from an initial public offering price of $7.80 to an intraday high of $2,555, an impressive jump of more than 32,000%.

Perhaps even more confusing, unlike other publicly traded financial giants that report hundreds of billions of dollars in revenue each year, AMTD’s IPO prospectus lists total sales of just $25 million for the year ending April 2021. However, that doesn’t stopped the company’s market value from rising to $310 billion at Tuesday’s close, making it larger than industry stalwarts such as Goldman Sachs Group Inc. and Bank of America Corp.

“I’m not entirely sure what the business model is, but it didn’t matter to the Reddit crowd, who dived in like piranhas,” said Max Gockman, chief investment officer at money manager AlphaTrAI Inc.

Like the retail-fueled frenzy of early 2021 that catapulted stocks like GameStop and AMC Entertainment Holdings Inc. to dizzying highs before falling just as quickly, AMTD’s reign as a financial giant looks likely to be short-lived. Since hitting a record high on Tuesday, ATMD Digital has fallen 57%, wiping out about $175 billion in market value along the way. That’s more than the entire current market capitalization of companies including Morgan Stanley, Intel Corp. and Goldman Sachs.

Still, it’s hard to attribute the stock’s wild moves entirely to retailers. Although AMTD Digital appeared high on Fidelity’s list of most actively traded stocks several times during the week, it lacked several key characteristics.

For starters, AMTD Digital does not have trading options available yet. Frantic buying of call options has been a hallmark of the surge in GameStop and AMC stock. Trading volumes, meanwhile, were also extremely light for most of last week’s moves. Despite swings of at least 40% in each direction on all but one day this week, the stock has yet to exceed 500,000 shares traded in a single day. Just over 50,000 shares changed hands on Friday, the sixth straight session of declining volume.

As for the retailers themselves, even a cursory search of the top WallStreetBets forum posts on Reddit shows a stream of denials of any involvement.

AMTD family

AMTD Digital’s frenetic moves have also led to extreme volatility in the stock of one of its parent companies, AMTD Idea Group. This firm, which is part of the larger AMTD Group umbrella, owns approximately 88.7% of AMTD Digital’s outstanding shares. This week also saw a wave of buying, jumping as much as 520% ​​on Tuesday alone.

On Friday, AMTD Digital announced that the underwriters of its IPO in mid-July had decided to exercise their full IPO option. That means they will be able to buy an additional 2.4 million American depositary shares at their listed price of $7.80 each, roughly 99% below the price at which they closed on Friday.

AMTD Global Markets Ltd. was the lead underwriter on AMTD Digital’s IPO, responsible for almost 90% of the shares, meaning it could potentially profit from its involvement.

All of this has put the spotlight on Calvin Choi, AMTD Group’s chairman, CEO and major shareholder, who is currently facing an industry ban in Hong Kong for failing to disclose a conflict of interest when he worked at UBS Group AG .

Some companies are already cutting ties. Billionaire Li Cashing’s CK Group said Thursday it will sell its remaining stake in parent company AMTD Group Co.

Growing pattern

As shocking as the post-IPO jump has been for AMTD Digital, it is far from alone in such moves. On Friday, another Hong Kong-based financial firm, Magic Empire Global Ltd. made its US trading debut, only to see its shares repeatedly halted due to volatility as they rose as much as 5,799%.

Other Hong Kong and Chinese stocks have seen similarly huge gains since their US debuts in recent weeks. At least five other companies, including Austin Technology Group Co., Golden Sun Education Group Ltd. and Intelligent Living Application Group Inc., reported intraday gains of 395% or more on their first day of trading.

Michael Burry, the investor who famously predicted the 2008 housing crash, tweeted a screenshot of Magic Empire’s stock chart on Friday and said: “Hazards bet more, lose more.”

(Updates with additional context on AMTD, prices throughout)

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