Hong Kong Hit by Dozens of Trading Halts After Earnings Deadline

Trading in more than 50 Hong Kong-listed companies was suspended on Thursday, after a number of firms failed to report earnings ahead of the March 31 deadline.

GCL-Poly Energy Holdings Ltd. and China Huarong Asset Management Co. were among the firms that announced a trading halt. GCL-Poly said additional time is required to complete its audit procedures while Huarong said it will delay delivering its earnings because its auditor will need more time to finalize a transaction. While it’s not uncommon for some companies in Hong Kong to have to suspend trading on April 1, the number this year compares with at least 9 last year and 25 in 2019.

“It’s a bit surprising to me that so many firms delayed their earnings and most of their filings didn’t explain very clearly,” said Daniel So, a strategist at CMB International Securities Ltd. “This year surprisingly there are so many delays, much more than last year when the pandemic hit. The longer they delay in reporting earnings, the worse it will be for their share prices.”

Trading halts may dampen investor sentiment toward Hong Kong’s stock market, where the benchmark gauge briefly slumped into a technical correction late last month amid setbacks in the city’s vaccine rollout and as traders rushed to sell pricey stocks in the wake of rising bond yields.

Hong Kong Hit by Dozens of Trading Halts After Earnings Deadline

“Many investors could be worried about their earnings and quality of reports,” So of CMB International said. “If they report quickly and the audit report doesn’t have a negative opinion on those companies, it should be fine.”

Last year, almost all companies listed in Hong Kong were able to provide an earnings update to investors ahead of the March 31 deadline, overcoming difficulties posed by travel restrictions and an economic lockdown following the outbreak of the coronavirus. The bourse allowed companies to release unaudited results by that date in relaxed rules during Covid-19 last year, but it didn’t make an exception again this year.

The delays could be simple because auditors need longer time to compile 2020 earnings results to account for new mergers and acquisitions or other business activity during the pandemic, according to Marvin Chen, Bloomberg Intelligence analyst.

The trading halts also come as regulators in Hong Kong and mainland China look to improve the standard of financial reporting of listed companies. The Securities and Futures Commission in Hong Kong said in February that it would enhance collaboration with the Financial Reporting Council, which oversees audit activities in Hong Kong, to ensure the quality of financial reporting.

Separately, the China Securities Regulatory Commission vowed to advance cooperation on cross-border auditing earlier this year in a statement on its work plan for 2021. The CSRC said it would set up cross-ministry work groups to strengthen crackdowns on illegal behaviors including frauds in IPOs and financial reporting, market manipulation.

“The CSRC has had a greater drive over the past years to make sure the financials of Hong Kong firms are sound as domestic investors have a growing rate of participation in Hong Kong, and this is in line with their goal onshore,” said Yu Yingbo, investment director at Shenzhen Qianhai United Fortune Fund Management Co.

The CSRC didn’t immediately reply to a fax seeking comment on whether the work plan has had an impact on financial reporting.

China Huarong said its auditor will need more time as a transaction is still being finalized. The company was scheduled to approve 2020 full year results on Wednesday. All structured products related to the company will also be suspended from trading. The firm’s bonds slumped.

“It shows that the market has more companies with financial problems,” said Francis Lun, chief executive officer at Geo Securities Ltd. Retail investors should be particularly cautious in current market environment, he added.

The Hang Seng Index climbed 2% on Thursday, tracking a broad rally in Asian stocks stoked by optimism over U.S. President Joe Biden’s $2.25 trillion infrastructure plan.

©2021 Bloomberg L.P.

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