The mysterious 8.500 percent share gain attracts big names (and big questions)


The bizarre explosion of DYF adds a long list of extreme, inexplicable stock exchanges threatening to ruin Hong Kong's reputation as one of the world's top financial markets. It also shows how, due to the increasing popularity of passive investment strategies, such incidents are making more and more money globally. The multibillion-dollar funds managed by BlackRock, Vanguard, and Northern Trust are all buyers of DYF shares since November, after becoming large enough and wet enough to include MSCI in the money to emulate.

Analysts have questions about the rules and regulations surrounding some of Asia's biggest stocks.

Analysts have questions about the rules and regulations surrounding some of Asia's biggest stocks.Credit:Shutterstock

DYF did not respond to multiple requests for comments. A receptionist at the company's office in Hong Kong directed Bloomberg to the assistant of President Sui Guangyi, who did not respond to emails.

The Hong Kong Stock Exchange and the City Securities and Futures Committee refused to comment, like BlackRock, Vanguard and Northern Trust. MSCI has stated that it uses quantitative criteria such as market value, free interest rate and liquidity when choosing companies for its indices and does not make judgments about profitability, growth prospects or other "subjective" measurements.

DYF, which has a purchase value of HK 31.2 billion ($ 5.6 billion), is the one that has been classified in Hong Kong as a capital investment company 21. Instead of operating their own companies, Capital companies 21 receive minority interests in other listed and unlisted companies. It is similar to closed-ended funds and their success depends to a large extent on the investment power of the management teams.

Sui, described as a "legendary figure" and "prominent scholar" in DYF promotional materials, began to make a significant stake in the company in early 2015 when he was named China Investment Fund Co. After becoming president later that year, he replaced the management team and changed the name of the company twice. Its share of DYF, which is about 16% of its shares, is currently about $ 600 ($ 841 million) million.

Fundamental principles do not support the stock rally at all

Li Yuanrong, managing director of 20VC venture capital company based in Shenzhen.

Sui's history, as discussed in DYF's advertising materials, is remarkable. Born in a rural family in northeastern China in the 1960s, his career in the early stages of his career included scenes as an engineer, a "successful multi-millionaire entrepreneur" and a government official. According to DYF, Sui then moved into the world of investment:

He retired in 2000 to devote himself to studying the integration of Eastern traditional wisdom and modern investment, as well as the techniques of capital operation and game theory. Using his new knowledge, he developed Zen & I-Ching investment theory and became an innovative way of investing following the steps of the investment of Warren Buffet (sic) and the investment hedge fund of George Soros.

In addition to his highly lucrative DYF bet, it is difficult to find evidence of Sui's investment strength. In fact, since becoming president of DYF, the company has been hit by some of the biggest crashes in Hong Kong.

According to regulatory reports, investments that lost money in 2016 included shares in Tech Pro, which dropped 90 percent after a critical report from sellers Glaucus Research and Kingbo Strike, who dropped 82 percent. Zhidao International Holdings, one of DYF's largest positions at the end of the second quarter, has fallen by 86% since June 30th.

DYF, meanwhile, has continued to climb from a high of all time to another, thanks in part to demand from the funds that monitor MSCI's large-scale global capitalization indicators.

    BlackRock is one of the many big names in the company.

BlackRock is one of the many big names in the company.Credit:Victor J. Blue

The stock gained 202 percent only the previous year, the best of the 2,700-plus members of the MSCI All-Country World Index. Estimated at 95 times net assets, it is one of the most expensive listed companies on Earth. (The stock is also ineligible for short selling, which may explain why it did not face any downward pressure and declined 1.6% on Friday.)

"Why would someone buy an investment company in 90 times NAV?" said David Webb, an independent investor and former member of the board of Hong Kong Exchanges & Clearing Ltd., who has made a fortune buying small-equity shares in Hong Kong over the last two decades. He said that MSCI should leave DYF and other companies in Chapter 21 outside the benchmarks.

"One of the dangers that MSCI faces in Asian equity markets, where rules can relax and their application is uneven, you see a lot of companies included in indicators that will not pass the odor test," said Melissa Brown, the Daobridge Capital advisory firm and a former member of the trading committee on the Hong Kong Stock Exchange, speaking in general.

About the time DYF has introduced for a long period of MSCI cash, critical reports have emerged about Sui's fundraising practices and the unusual movement of DYF shares into the Chinese press.

In an e-mail response to questions from Bloomberg, China's Asset Management Association said it knew the media reports that a Ding Yi Feng Group (a Chinese company that also counts Sui as president) had offered individual savers guaranteed monthly returns of 2.5 per cent on an investment and that the unit had not recorded multiple fund items with the union.

AMAC said private fund managers in China can not guarantee basic and minimum profits and report and deliver any unlawful cases to the China Securities Regulatory Commission and other authorities. The CSRC did not respond to a fax request for annotation.


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