(Bloomberg) — Even after a retail frenzy involving GameStop Corp. became the hottest stock in the world and a dog-themed cryptocurrency gained billions in value, the whirlwind trade in an obscure Hong Kong financial company stands out as spectacular.
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The Rapid Rise of AMTD Digital Inc. — a barely profitable financial services company — is a story that, while reminiscent of last year’s meme-stock frenzy, is even more mysterious. In a move that stunned the financial community, the company’s shares skyrocketed from their initial public offering price of $7.80 to an intraday high of $2,555 in less than three weeks, a dazzling jump of more than 32,000%.
Perhaps even more baffling, unlike other publicly traded financial juggernauts who report hundreds of billions of dollars in revenue each year, AMTD’s IPO prospectus lists total revenues of just $25 million for the year ending April 2021. Still, that kept the market from falling. the company isn’t worth ballooning to $310 billion by Tuesday’s end, making it bigger than industry peers like Goldman Sachs Group Inc. and Bank of America Corp.
“I’m not quite sure what the business model is, but that doesn’t matter to the Reddit crowd who are swooping in like piranhas,” said Max Gokhman, chief investment officer at money manager AlphaTrAI Inc.
Much like the retail mania of early 2021, which saw stocks like GameStop and AMC Entertainment Holdings Inc. catapulted to mind-boggling highs before plummeting just as quickly, AMTD’s run as a financial giant looks likely to be short-lived. Since hitting a record high on Tuesday, ATMD Digital is down 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 pin the stock’s wild moves entirely on shoppers. While AMTD Digital appeared high on Fidelity’s list of most actively traded stocks several times during the week, it lacks a few key features.
For starters, AMTD Digital does not yet have tradable options. The frenzied buying of call options has been a hallmark of the rises in GameStop and AMC stocks. Trading volumes, meanwhile, were also extremely low for much of the past week’s moves. Despite seeing all of the swings of at least 40% in both directions on one day this week, the stock has not yet cracked 500,000 shares that traded in one day. Just over 50,000 shares switched hands on Friday, the sixth consecutive session of declining volume.
As for the retailers themselves, even a cursory search for the top posts on Reddit’s WallStreetBets forum reveals a torrent of denials of any involvement.
AMTD Digital’s frenetic moves also led to extreme volatility in the shares of one of its parent companies, AMTD Idea Group. That company, which is part of the larger AMTD Group umbrella, owns approximately 88.7% of AMTD Digital’s outstanding shares. It, too, saw a surge in purchases this week, rising a whopping 520% on Tuesday alone.
On Friday, AMTD Digital announced that the insurers of the mid-July IPO had decided to exercise their full greenshoe option. That means they can buy 2.4 million U.S. depositary shares at their listing price of $7.80 each, about 99% lower than where they closed on Friday.
AMTD Global Markets Ltd. was the lead underwriter at AMTD Digital’s IPO, responsible for nearly 90% of the shares, meaning it could potentially benefit from his involvement.
That was all the spotlight on Calvin Choi, the chairman, chief executive officer and major shareholder of AMTD Group, who is currently facing an industry ban in Hong Kong for failing to disclose a conflict of interest while working at UBS Group AG.
Some companies are already cutting ties. Billionaire Li Ka-shing’s CK Group said on Thursday it would sell its remaining stake in parent company AMTD Group Co.
As shocking as the post-IPO surge 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 trading debut in the US, but saw its stock stall several times due to volatility as it rose a whopping 5.799%.
Other stocks from Hong Kong and China have seen similar gains after debuting in the US in recent weeks. At least five other companies, including Ostin Technology Group Co., Golden Sun Education Group Ltd. and Intelligent Living Application Group Inc. have posted intraday gains of 395% or more on their first trading day.
Michael Burry, the investor who famously predicted the 2008 housing crash, tweeted a screenshot of the Magic Empire stock chart on Friday, saying, “Gamblers gamble more the more they lose.”
(Updates with additional context about AMTD, prices everywhere)
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