Sculptures of water buffalo stand in a plaza at Exchange Square in Hong Kong (Photographer: Lam Yik Fei/Bloomberg)

Paper Billionaires Lose Their Fortunes Amid Stock Rout

(Bloomberg) -- Three former billionaires who made their fortunes by taking their companies public in Hong Kong shed more than 91 percent of their wealth amid the market rout that’s roiling small-cap stocks in the city.

Huang Wenji suffered the biggest loss when his stake in China Jicheng Holdings Ltd. plunged $1.9 billion since the crash began during trading hours Tuesday. Shares of the umbrella maker based in Jinjiang in China’s Fujian province tumbled 95 percent as a series of losses cascaded across a network of companies with cross-shareholdings, leaving the former billionaire with a stake in the business that the Bloomberg Billionaires Index values at $115 million.

Paper Billionaires Lose Their Fortunes Amid Stock Rout

Wong Wing-wah and Wong Che-kwo, two more ex-billionaires whose civil engineering business Luen Wong Group Holdings Ltd. is linked to the same network, lost a combined $1.1 billion in the rout. The declines shrunk the value of their stakes by 91 percent.

Both companies are among more than 131 stocks featured in warnings from Hong Kong’s regulator, the Securities and Futures Commission, about high shareholding concentrations, thin turnover and small public floats. The businesses were flagged along with 48 others by shareholder activist David Webb in what he called the "Enigma" network in a report published six weeks ago. He argued their valuations had reached unsustainable levels as a result of a complex web of cross-shareholdings between the companies.

The recent losses underscore how the Hong Kong Stock Exchange and its sibling, the Growth Enterprise Market, have become a breeding ground of extreme volatility. In the past three years, as many as a dozen executives have amassed billion-plus wealth as their companies’ share prices soared, usually for no apparent reason.