from Zero Hedge
Welcome to the not-rigged markets…
As of Tuesday
ArtGo, which listed in 2013, reported a net loss of about 29 million yuan ($4.1 million) in the first six months of 2019, after losing 396 million yuan in 2018. The marble-producing company began investing in the Chinese real estate market this year, buying properties valued at 206 million yuan. ArtGo funded the deals through a combination of cash and newly issued shares that were sold at discounts of more than 20% to the prevailing market price at the time.
As Bloomberg details, the stock began surging around the middle of this year and was added to the FTSE Global Equity Index Series China Index in late September, prompting passive funds managed by the likes of Vanguard and State Street Corp. to buy.
On the first trading day after ArtGo was included in the index, it plunged nearly 50%. State Street and Vanguard declined to comment.
By early October, ArtGo had begun rallying again. The gain accelerated after MSCI said on Nov. 7 that it would add the company to its indexes, sending the stock up more than 100% between the announcement and Wednesday’s close.
Today, it is worth practically nothing having collapsed 98% overnight…
So, what happened?
Simply put, MSCI Inc. scrapped plans to add the high-flying stock to its suite of indexes because of “concerns about investability.”
The decision wiped out more than $5.7 billion of value before trading was suspended.
“It’s good that MSCI is listening to what market participants are saying,” Daniel So, a strategist at CMB International Securities Ltd., said by phone.
“It’s positive for the health of the market. It’s hard to avoid adding some stocks with bubbles into the benchmark if we just focus on data like market cap. So it’s good that MSCI is doing case-by-case studies.”
MSCI actions come after it was criticized earlier this year for including Hong Kong-listed China Ding Yi Feng Holdings Ltd. in its indexes after the company rallied 8,500% over five years despite repeatedly reporting operating losses. As Bloomberg reports, the stock was later suspended by Hong Kong’s securities regulator, which said it was investigating suspicious trading in DYF after its price had climbed to an “irrationally high” level.
As Bloomberg reports, index decisions by MSCI and its rivals have grown increasingly important for stock markets in recent years, thanks to the growing popularity of passive investment strategies.