By now virtually every trader has personally experienced or participated in a flash crash, whether in FX (most recently two weeks ago when numerous Yen carry pair suddenly tumbled), in stocks or in bonds. But few have observed a flash crash which sparks a domino effect of even more flash crashes.
Well, that’s precisely what happened in Hong Kong overnight, when a string of local stocks plunged without warning and without any news in afternoon trading, the second perfectly unpredictable flash crash in two weeks leaving investors nursing massive, and unexplained, losses in the world’s fourth-largest equity market.
Jiayuan International Group, Sunshine 100 China Holdings and Rentian Technology Holdings all plunged over 75% in a matter of minutes and at least 10 companies by at least 20% or more by the close, wiping out nearly $5 billion in market value. Most of that came from Jiayuan, which lost HK$26.3 billion on record volume according to Bloomberg.
The complete list of stocks that were “triggered” is shown below:
What made the latest Hong Kong flash crash episode unique is that it appeared to spark a domino effect, with the first sudden drop catalyzing subsequent collapses: “some of these companies might have cross-shareholdings in each other and when one of those starts to tumble, it brings down other related stocks,” said Bocom strategist Hao Hong. “It’s likely more similar stock crashes could happen this year. A lot of share pledges in Hong Kong are underwater, and as soon as the positions are liquidated it triggers an avalanche.”
This is not the first time Hong Kong has seen such a coordinated liquidation: in 2017, an “Enigma Network” of 50 stocks roiled the city’s markets triggering a crash in dozens of interlinked companies weeks after noted activist David Webb published a report.
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