More than 50 Hong Kong traded companies were halted from trading on Thursday after most failed to file their full-year 2020 earnings reports in time.
While the majority of the companies that were suspended were small-caps, there were some larger firms involved including financial service provider China Huarong Asset Management (HKEX: 02799) and solar energy company GCL-Poly Energy Holdings (OTC: GCPEF; HKEX: 03800). Both companies cited the need for more time to finish auditing procedures.
According to CNBC, 384 Hong Kong firms did not post their full-year 2019 financials by the Mar. 31 deadline last year. However, those companies continued to trade thanks to the stock exchange and the markets regulator loosening restrictions during the beginning stages of the coronavirus pandemic. In 2020, there were at least 9 companies suspended from trading compared with 25 from a year earlier, according to Bloomberg.
Unfortunately, the exception of those rules did not apply for this year. Daniel So, a strategist at CMB International Securities Ltd. notes that the longer it takes these companies to report their financials “the worse it will be for their share prices.”
“Many investors could be worried about their earnings and quality of reports,” So said, as cited by Bloomberg.
He added, “If they report quickly and the audit report doesn’t have a negative opinion on those companies, it should be fine.”
Marvin Chen, a Bloomberg Intelligence analyst notes that auditors may need additional time to account for business activity, as well as mergers and acquisitions amid the pandemic.
The trading suspension today follows an effort by regulators in Hong Kong and mainland China to enhance financial reporting. In February, the Securities and Futures Commission said it would boost its partnership with Hong Kong audit regulator the Financial Reporting Council to ensure the quality of earnings reports.
At the close of trading today, the Hang Seng Index rose 2% to 28,938.74 points. Hong Kong Investors appeared to have cheered President Joe Biden’s $2 trillion infrastructure plan.