US-Traded, Low Float Chinese Stocks Are Going Crazy

Some major fundamental news for a little-known Chinese stock has triggered some extreme volatility in low float, U.S.-listed Chinese stocks on Thursday.

What Happened

On Wednesday, China’s Yulong Eco-Materials Ltd. YECO announced the completion of a $50-million acquisition of the Millennium Sapphire, a 17.9 blue gem that was recently appraised at a value of between $60 million and $90 million. Yulong said it will now begin the process of spinning off its China business, moving its headquarters to New York and focusing on its gemstone business.

Why It’s Important

Yulong shares, which have a float of just 1.09 million, have skyrocketed 687 percent in two days on extremely high volume. However, the short squeeze in Yulong stock has seemingly inspired sympathy buying in other low-float China stocks that have underperformed in 2018.

Here’s a sampling of the stocks that have been halted multiple times Thursday due to the low-float China trade. Price shows how much they moved on the day as of 12 p.m. ET:

• China Recycling Energy Corporation Common Stock CREG up 17.6 percent.
• ChinaCache International Holdings Ltd. CCIH up 3 percent.
• JMU Ltd- ADR JMU up 5.6 percent.
• Takung Art Co Ltd TKAT up 21.2 percent.
• Euro Tech Holdings Company Ltd CLWT up 5.8 percent.
• China Ceramics Co Ltd CCCL up 93.3 percent.
• Delta Technology Holdings Ltd DELT up 1 percent.
• Chinanet Online Holdings Inc CNET up 24.2 percent.
• China Techfaith Wireless Comm. Tech. Ltd CNTF up 3.1 percent.
• China Advanced Constructn Mtrls Grp Inc CADC down 5.4 percent.

The common element among all these stocks on the move appears to be that they're all based in China, they all have low floats and they have all performed extremely poorly prior to the past two days. With the exception of Chinanet, which was up 32 percent year-to-date prior to Wednesday, all the other stocks mentioned were down between 9 percent and 88 percent in 2018. In fact, eight of the 11 stocks were down more than 34 percent this year.

What’s Next

Traders will be watching to see if there’s a fundamental driver behind this low-float China sympathy trade or if it’s simply a case of the stocks' low floats being wound too tightly to handle even the least bit of Yulong sympathy buying. Without any fundamental news to back up the heavy volume in these stocks, it's likely the volatility and large moves in share price won't last for long.

Related Links:

Yulong Completes Millennium Sapphire Acquisition

Why Short Percent Of Float Is Meaningless For Most Popular Stocks