As the Chinese economy rapidly slumped, the stock prices of 7 out of 11 Chinese companies listed in Korea fell below 1,000 won into ‘coin stocks’. It is analyzed that investors react sensitively to the Chinese economy as most Chinese companies listed in Korea rely heavily on sales from mainland China.
According to the Korea Exchange on the 29th, 7 out of 11 Chinese companies listed on the Korean stock exchange, including Sungyeong Group, Roswell (900260) and Global SM (900070), are trading at less than 1,000 won. In particular, four companies, Golden Century (900280) , East Asia Holdings (900110) , CKA, and Organic Tea Cosmetics (900300) are trading at around 100 won. Wingip Food (900340) , GRT (900290) , Color Ray (900310), and Crystal New Material (900250) were spared from coin stocks, but their share prices do not exceed 5,000 won per share.
Stock prices of Chinese companies listed in Korea have fallen sharply since June as China’s economic slowdown materialized in various indicators. Golden Century, which was traded at 364 won at the end of last year, fell to 209 won at the end of June, and closed at 187 won on the 29th. Earlier, China said the youth unemployment rate between the ages of 16 and 24 hit an all-time high of 21.3% in June. Retail sales in China also plummeted from 18.4% in April this year to 3.1% in June.
To make things worse, China’s stock prices faltered again from mid-month when Country Garden, a Chinese real estate developer, failed to pay $22.5 million (about 30 billion won) in interest on a $1 billion bond and fell into default. For 15 days from the 14th of this month,안전놀이터 Hengsheng Group plunged 24.65%, while Golden Century ( -7.43 %) and Global SM ( -3.70 %) all fell at once. East Asia Holdings ( -3.40 %), Organic Tea Cosmetics ( -2.16 %), and CKH (900120) ( -1.35 %) also fell. The market capitalization of seven Chinese coin stocks, which are showing weakness every day, decreased 24.6 percent from 320.1 billion won at the beginning of this year to 241.3 billion won on the 29th.
As most of these companies are generating sales in mainland China, the burden of deteriorating performance is actually growing. Organic Tea Cosmetics, a cosmetics company, is headquartered in Hong Kong, and more than 99% of its total sales are generated in China and Hong Kong. The company recorded an operating loss of 63.9 billion won last year and turned to the red, raising concerns over its performance.
Even in the early 2010s, Chinese companies that were listed on the domestic stock market began to crash after the ‘Go Island Incident’. After listing in 2011, Gosum was delisted after an accounting fraud of 100 billion won was revealed within three months. As Chinese companies left the stock market for no particular reason after making a lot of money in Korea, the stock price level fell further. SNK , whose largest shareholder is a Chinese corporation, voluntarily went bankrupt last year after being surrounded by suspicions that it held a stock option party for executives and employees with public offering funds.
While there have been zero new listings since 2016 due to successive scams, it seems that it will not be easy for Chinese companies to go public in the future. This is because most of the companies that have only been listed in Korea have nothing to do with Korea. While the headquarters of Global SM Golden Century are located in the Cayman Islands, a tax haven, Crystal New Materials has not posted any information in the IR archive on its website since October 2020 .
It is also burdensome that it is only used for high-frequency stocks due to the nature of coin stocks, which can control stock prices even with a small supply and demand. Hengsheng Group, whose stock price is around 200 won, rose 29.61% on the 11th of this month, and then plunged 16.15% in one day on the 16th. Hengsheng Group announced last month that “there was no selling of executives and employees” regarding the stock price drop, but in less than a month, Hui Mankit, the de facto controlling shareholder (Chairman), sold 4.2 million shares through off-hours trading, drawing controversy. Hwang Se-woon, a senior researcher at the Capital Market Institute, emphasized, “After going through several delistings, trust in Chinese companies is very low.”