Hong Kong Regulator Warns on Concentrated Shareholding in Small-Cap Stocks

Hong Kong’s securities regulator has put a spotlight on highly concentrated shareholding this year, a move interpreted by market analysts as a warning about sharp price swings on small-cap stocks.

For example, the controlling shareholder and 18 shareholders of Desun Real Estate Investment Services Group, a Sichuan-based property management firm, held a combined 99.53 per cent of total issued shares as of July 21, according to an SFC announcement on Monday.

The firms cited by the SFC were small- and mid-cap stocks, with market values between HK$600 million (US$89 million) and HK$9 billion. The regulator warned that when ownership was concentrated among a few shareholders, even small trades could cause sharp price swings.

Andrew Lam, managing director at audit firm BDO, said market funds and investor attention were heavily focused on “A plus H” listings – firms with both Hong Kong shares, called H shares, as well as A shares listed in mainland China – as well as biotech companies and specialist tech leaders.

“Old-economy small- and mid-caps lack market appeal and suffer from light daily trading, making it easy for limited capital or specific buyers to absorb most floating shares and trigger high concentration,” he said.