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What is Behind the AMTD Stock (HKD) Surge This Time?

Shares of digital bank AMTD Digital keep rising despite no obvious catalysts. Here's what investors need to know.
  • Shares of Hong Kong-based investment bank AMTD Digital have jumped at some point nearly 700% in the past two trading sessions.
  • The company's stock mysteriously jumped 21,000% after its debut on the NYSE.
  • Other Asia-based companies have also recently experienced abnormal trading activity following their U.S. IPOs.
Figure 1: What is Behind the AMTD Stock (HKD) Surge This Time?

Figure 1: What is Behind the AMTD Stock (HKD) Surge This Time?

(Read more from Wall Street Memes: “Big Short” Michael Burry Says SPY’s Downturn Has Not Reached Its Bottom Yet)

What Is AMTD Digital?

AMTD Digital  (HKD)  is a subsidiary of AMTD Idea Group  (AMTD) - Get AMTD IDEA Group American Depositary Shares each representing one Class A Report.

The Hong Kong-based company offers digital banking services and insurance technology platforms for consumers and small and medium-sized businesses. AMTD Digital also offers an ecosystem called SpiderNet, which consists of a platform for improving investor communication.

During its initial public offering (IPO) on June 15, it sold 16 million ADSs (American depositary shares) at a value of $7.80 each and raised $124.8 million in cash.

About two weeks later, abnormal trading activity pushed AMTD Digital's share price to $2,000, which represented an impressive 21,000% gain since its debut on the NYSE.

After this gigantic jump in the share price, the company said in a statement that there were no material events or circumstances related to its business that would justify that level of volatility in AMTD Digital's stock. The company also said that it would continue to monitor for further abnormalities in the stock's trading activity.

During the peak of AMTD Digital's trading activity, the stock was worth as much as $310 billion — more than companies like Coca-Cola KO. Currently, AMTD Digital has a market cap of $35.5 billion, still higher than companies like Rivian  (RIVN) - Get Rivian Automotive Inc. Report and Twitter  (TWTR) - Get Twitter Inc. Report.

AMTD Digital generated $25 million in revenue in 2021. It currently trades at 400 times its last fiscal-year earnings.

Why Is AMTD Digital's Stock Up Triple Digits?

The mystery behind the trading activity of AMTD Digital stock continues. During the trading session on September 14, the Hong Kong digital investment bank jumped 311% and a further 50% on September 15 without any obvious catalyst.

The last news released by the company was on August 30, when two directors were appointed to the company's board.

On September 14, the trading of HKD shares was halted 11 times due to high volatility. According to Bloomberg data, around 1.5 million shares were traded, which represents an increase of 5,500% above the average trading volume of the last 10 days. AMTD Digital's float today comprises 23.25 million shares.

The Mystery of Asian Stock IPOs

AMTD Digital isn't the only Asian company whose shares saw abnormal trading activity after its IPO.

Addentax Group Corp.  (ATXG) , which engages in apparel manufacturing and logistics services among other businesses, jumped about 13,031% in early September on its U.S. stock IPO. During the August 31 trading session, more than 20 trading halts were recorded, and Addentax saw its market cap reach $20 billion at the time.

Malaysian company Starbox Group Holdings (STBX), which operates in payments and business ecosystem solutions, listed on the Nasdaq in mid-August and saw its shares skyrocket 1,050% on IPO day — before losing nearly all its gains a few days later.

Finally, Hong Kong-based Magic Empire Global (MEGL), which is an offshore holding company, saw its shares soar by about 6,000% during its IPO on the Nasdaq. A few days later, its gains vanished.

However, Addentax, Starbox, and Magic Empire had one thing in common: Network 1 was their U.S. IPO underwriter.

Network 1 provides investment banking services to assist public companies that aim to "take advantage of the rapidly changing equity markets" and a "Chinese Concept IPO service," according to a Financial Times report.

Network 1 offered these companies compensation warrants, which entitled it to a portion of the issued shares. This was in addition to the standard "greenshoe" options, which grant the IPO underwriter the right to sell more shares than the issuer originally planned.

According to a former investment banker, bulge bracket investment banks do not take warrants like the ones offered and classify them as "far from atypical."

However, there's no indication that Network 1 had a stake in AMTD Digital's IPO.

Instead, it's possible that the abnormal activity is due to a similar maneuver by its IPO underwriter, AMTD Global Markets, which is responsible for nearly 90% of the HKD shares.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)