Shares in Fangdd Network Group, an online real-estate services provider based in China, closed up nearly 400 percent yesterday. The reason? Your guess is as good as mine. The stock, which trades on the NASDAQ exchange as an American depository receipt, shot from $10 to an intraday high of $129.04 before reverting to $47, but the jump was accompanied by no positive headlines or blockbuster earnings results.
The company did post earnings today, but they were dreadful — understandably so, given the pandemic’s effect on real estate. Some have reasoned that uninformed retail investors intending to buy popular FAANG stocks mistakenly bought Fangdd shares instead. It sounds absurd, but when Zoom Video Communications rallied as Americans began to work from home, the eponymous but unaffiliated Zoom Technologies saw its shares rally. It’s called “dumb money” for a reason. But that doesn’t explain the timing of the Fangdd rally, nor is it likely that day traders confused the company’s ticker (DUO) for a tech ETF. It looks more like a classic pump-and-dump scheme.
Chinese companies listed on American exchanges are notoriously opaque and prone to abuse. Because Chinese firms are not subject to the same reporting requirements as domestic firms, investors have to speculate as to the reliability of their financial statements. Earlier this year, Luckin’ Coffee, a blockbuster startup that envisioned itself as the Chinese Starbucks, came crashing down after it was revealed to be a fraud. Senator Marco Rubio has called for American exchanges to delist Chinese firms that do not comply with domestic regulations.
The inexplicable volatility of Fanngd shares will likely not be brushed away, given its sizable market cap of $1.4 billion. But regulators have little recourse to investigate a company not subject to U.S. laws or regulations.