Chinese small-cap stocks experience meme-like rally

Both Top Financial and Magic Empire are among the most closely watched stocks on Stocktwits, a popular website for retail investors.

On Friday, U.S.-listed shares of small and micro-cap Chinese companies experienced significant gains, drawing comparisons to the meme rallies of last summer driven by retail investors on social media.

Top Financial Group Ltd’s (TOP.O) shares skyrocketed by 645% to $149 during afternoon trading, raising its market capitalization to around $5 billion.

The stock had nearly tripled to $20 per share on Thursday, closing at a total market value of $701 million.

Shares of Magic Empire Global Ltd (MEGL.O), a financial advisory and underwriting services provider, leaped 328% to $3.97 per share. The stock had closed at $0.93 on Thursday, with a market capitalization of $18.8 million.

Other Chinese firms that saw their share prices rise include Top KingWin Ltd (TCJH.O), a consulting and advisory services provider, which gained 39%, and U Power Ltd (UCAR.O), an automated battery-swapping station provider for electric vehicles in China, which saw a 20% increase. Both companies recently listed on the Nasdaq after pricing their respective initial public offerings.

Nathan Anderson, founder of Hindenburg Research, a short selling firm, said that these share price surges are part of a years-long pattern of pump and dump schemes involving Nasdaq-listed companies.

Anderson criticized Nasdaq for not halting the stocks, accusing the exchange of turning a blind eye to fraud in order to collect listing fees.

A Nasdaq spokesperson declined to comment on the matter. However, it should be noted that in October, Nasdaq halted the IPO preparations of at least four small Chinese firms, while investigating short-lived stock rallies following their debuts.

Additionally, Nasdaq and the Financial Industry Regulatory Authority (FINRA) issued a warning in November about an increased risk of fraud involving small-cap IPOs, partly driven by a social media-fueled pump-and-dump scheme known as “pig butchering.”

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