MSCI Inc. has canceled plans to add a high-flying Hong Kong share to its index package due to valuation worries, a dramatic turnaround that caused the company a whopping 98 percent loss.
ArtGo Holdings Ltd., which this year had surged nearly 3,800 percent for the world's largest profit for companies with a market cap of at least $1 billion, lost almost all of that advance in a matter of minutes on Thursday as shareholders reacted to MSCI's decision. As soon as the trade was halted, the portfolio washed out more than $5.7 billion in price.
MSCI, which announced its intention to include ArtGo just two weeks ago, said in Wednesday's statement that it would no longer do so after "further analysis and feedback on investments." An ArtGo executive divulged that the company, a marble producer that has expanded into other businesses such as real estate, could not comment immediately.
ArtGo's solid turnaround had flummoxed local market veterans, with well-known entrepreneur David Webb announcing last month that the company's stock was becoming some sort of a "bubble," the latest in a series of unexpected fluctuations in the region that caused some shareholders to ask MSCI and other index compilers to change their testing requirements to filter out such shares.
Earlier this year, MSCI was blamed for including in its indices Hong Kong-listed China Ding Yi Feng Holdings Ltd. after the firm surged 8,500 percent over five years despite persistent operating losses. Hong Kong's securities regulator subsequently suspended the portfolio, claiming it was probing illegal trading in DYF after its value had risen to "irrationally large" rates.
At the time, the company said it utilized quantitative formula like free-floating, market value, and liquidity when selecting entities for its indexes and did not make judgments about profitability, growth prospects, or "any other subjective" metrics.
Due to the increasing prevalence of passive investment approaches, index assessments by MSCI and its peers have become increasingly important for stock markets in recent years. Multibillion-dollar funds managed by Vanguard Group Inc., Northern Trust Corp, and BlackRock were all buyers of DYF's stocks after it linked up with MSCI's indices.
MSCI did not respond to a request for comment immediately. As spokesmen for the Hong Kong stock exchange and the city's Securities and Futures Commission, FTSE Russell, which lists ArtGo in one of its China indices, declined to comment. Bloomberg LP, Bloomberg News' parent company, is competing with MSCI and others by compiling indexes and providing stock, bond and commodity analytics.
