“Monster IPO” Flash Crash Inflicts Losses on Fund Investors and Reignites Timing Debate over Index Inclusion

On September 16, the Hong Kong–listed innovative pharmaceutical company Yaojie Ankang-B (02521.HK) surged as much as 63.73% at the open, only to reverse sharply in the afternoon and plunge by the same margin. By market close, the stock had dropped 53.73%, settling at a market capitalization of HKD 76.2 billion—a dramatic swing that impacted both retail and mutual fund investors after this three-month-old listing was rapidly added to multiple indices.

Since its June 23 debut, Yaojie Ankang-B had rallied aggressively. Its first-day closing price of HKD 23.50 climbed 136.51% by September 8, the day it was added to the Stock Connect eligible list. Between September 8 and 15, the stock surged another 557.69%, reaching HKD 415, fueled in part by the September 10 announcement that its core product, Trengotilib, had received tacit clinical trial approval. Following the flash crash, the board issued a statement confirming that operations and financial conditions remained stable, with no material changes.

The sharp decline prompted scrutiny over the CSI Hong Kong Stock Connect Innovative Drugs Index’s decision to include Yaojie Ankang-B without prior public notice. As of September 16, the index provider’s website had not yet updated its sample list, although exchange records showed five ETFs tracking the index—including HFTF CSI Hong Kong Stock Connect Innovative Drugs ETF, which, together with its feeder fund, manages RMB 14.157 billion. Across all five ETFs and their feeder vehicles, total assets under management amount to RMB 25.39 billion, implying passive purchases of approximately RMB 600 million for Yaojie Ankang-B at its 2.63% index weight.

The timing of index inclusion has long been contentious. Companies such as Cambricon (688256.SH) and Seres (601127.SH) faced criticism when added to the SSE 50, SSE 180, and CSI 300 after tenfold and fivefold share gains, respectively. Contemporary Amperex Technology Co., Limited (CATL) (300750.SZ) became the second-largest constituent of the CSI 300 upon its 2021 inclusion, only to see its share price decline thereafter, affecting fund NAVs. Although index methodologies typically require a one- to three-year listing history, proponents of early inclusion—especially in volatile sectors like innovative pharmaceuticals—argue it allows investors to capture momentum. Yet the CSI Hong Kong Stock Connect Innovative Drugs Index’s own rules mandate Stock Connect eligibility, no major compliance or financial anomalies in the past year, normal operating results, and average daily turnover above HKD 10 million. Eligible stocks are ranked by one-year average market capitalization, with the top 50 selected. That Yaojie Ankang-B was added within three months of listing has raised concerns about whether this decision lacked the prudence necessary given the company’s sub–5% tradable float and attendant liquidity risks.