The Stock Connect Effect: Jaw-Dropping Surges Meet Sobering Data on Pullback Risks

Exploring the wild ride of Stock Connect inclusion can be an eye-opener for investors, especially when a stock skyrockets over 450% in just a few days.

That’s exactly what happened recently with the H-shares of Shandong Molong Petroleum Machinery Co., Ltd. (Shandong Molong 山东墨龙), grabbing massive market attention.

But it’s not just about champagne-popping gains; there’s a flip side with crucial risk signals you need to know.

Let’s dive into what’s happening and what the data tells us about these market shake-ups.

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Shandong Molong’s H-Share Frenzy: A Case Study

The buzz around Shandong Molong (山东墨龙) H-shares hit fever pitch recently.

Two main catalysts were at play: its re-inclusion in the pivotal Stock Connect mechanism and the removal of the “ST” (Special Treatment) risk warning for its A-shares.

This combo sent its stock price on an almost unbelievable trajectory.

The Surge Details: To the Moon?

On May 7, Shandong Molong (山东墨龙) H-shares continued their climb after the market opened, even hitting an intraday high with a 50.4% gain.

Things cooled off a bit later, and it actually closed down 6.37% that day.

But the real fireworks started earlier.

The H-share price began its unusual upward dance on April 30.

From its lowest point to its peak, the stock saw a mind-boggling maximum gain of 451.09% within just four trading days!

The big day was May 6, when Shandong Molong (山东墨龙) H-shares were officially included in the Stock Connect program.

On that single day, the stock surged an incredible 188.51% – its largest single-day gain ever recorded.

Beyond Stock Connect: The “ST” Removal Boost

It wasn’t just the Stock Connect news.

The removal of the “ST” designation for Shandong Molong’s (山东墨龙) A-shares also threw fuel on the fire.

This meant other risk warnings were lifted starting from the market open on May 6.

Its A-share stock abbreviation changed from “ST Molong” back to “Shandong Molong.”

The A-shares? They hit their daily trading limit for two consecutive days.

By the close on May 7, there were still 464,300 buy orders stacked up at the limit-up price, valued at over ¥200 million RMB (approximately $27.78 million USD).

The Wild Ride of A-H Share Premiums

With Shandong Molong’s (山东墨龙) H-share price going parabolic, the premium of its A-shares over H-shares (the AH-share premium) saw some extreme swings.

Here’s how it played out:

• From the start of this year until May 2, the AH-share premium was consistently above 130%.
• It even peaked at a hefty 245.52%.
• Then came the May 6 surge. The premium did something totally unexpected: it flipped negative to -6.73%. This meant, for the first time since its Hong Kong listing, H-shares were actually trading at a premium to A-shares!
• As of May 7, the AH-share premium settled back to 9.71%.

Talk about a rollercoaster for arbitrage watchers!

Zooming Out: The Wider Impact of Stock Connect Inclusion on Share Prices

Shandong Molong (山东墨龙) isn’t an isolated case.

Historical data shows that several stocks have experienced significant surges when they get the nod for Stock Connect.

Surge on Inclusion: It’s a Pattern

Let’s look at some other notable examples:

• Zhuangyuan Pasture Co., Ltd. (Zhuangyuan Muchang 庄园牧场) (note: its H-shares have since been delisted) was included in the Shenzhen-Hong Kong Stock Connect on November 14, 2017. Its stock price jumped 95% that day.
• Cosmopolitan International Holdings Limited (COSMOPOL INT’L) got into Stock Connect on November 9, 2023, and saw a 76.68% surge on the same day.

For both of these, it was their largest single-day gain on record.

And there are more:

• ASPACE Company Limited (Zhouji Hangtian Keji 洲际航天科技)
• AIM Vaccine Co., Ltd. (Aimei Yimiao 艾美疫苗)
• Jiangsu Lopal Tech Co., Ltd. (Longpan Keji 龙蟠科技)

All these companies saw their stock prices leap by over 60% on the day of their Stock Connect inclusion.

Data Speaks: Recent Years Show Stronger Inclusion Day Gains

Generally, stocks tend to do well on their Stock Connect inclusion day. This trend has become even more pronounced in the last three years.

According to stats from Data Bao (a data service), if we exclude delisted stocks and look at inclusions from 2023 to 2025 (counting Shenzhen-Hong Kong and Shanghai-Hong Kong Stock Connect inclusions separately, and multiple inclusions separately):

• The average daily gain upon inclusion was above 1.5% each year.
• Specifically, the average gains were:
  • 1.76% in 2023
  • 1.97% in 2024
  • A whopping 6.58% (YTD for 2025)

Looking
back a bit further, between 2015 and 2021, stocks included in Stock Connect also generally performed well on the day following inclusion, with the average next-day gain often exceeding 0.4% annually.

The Flip Side: Declines on Stock Connect Removal

What goes up can come down.

Just as inclusion can spark a rally, being removed from Stock Connect often leads to noticeable declines on the day of removal.

Excluding delisted stocks, the average decline on the day of removal from Stock Connect is a significant 5.2%.

Some drops are even steeper: nine stocks fell by more than 30% on their exit day.

For instance, China Brilliant Sky International Holdings Limited (Huayin Guoji Konggu 华音国际控股) was removed from the Stock Connect trading list on September 9, 2019.

Its stock price plummeted 40.59% that very day.

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Investor Beware: The Hidden Dangers of Post-Inclusion Hype and Potential Pullback Risks

So, what’s driving these intense reactions, and what should savvy investors keep in mind?

Why Stock Connect Inclusion Sparks Excitement

When Hong Kong-listed companies get into Stock Connect, it’s a big deal.

It allows mainland Chinese investors to directly invest in these stocks, which naturally helps boost the stock’s market activity and liquidity.

Getting into the Stock Connect program isn’t easy; there are certain thresholds.

Because of this, investors often see it as a kind of “quality asset screening pool.”

Inclusion typically ramps up investor attention, which in turn can drive up stock prices.

The A-H Share Arbitrage Play

In the case of Shandong Molong (山东墨龙), the significant A-H share price difference was another key reason for the speculative trading in its H-shares.

Before its inclusion, the A-H premium was over 130% (meaning A-shares were much more expensive).

Driven by the classic investor desire to buy relatively “cheaper” assets, southbound capital (money flowing from mainland China to Hong Kong) rushed in to purchase Shandong Molong (山东墨龙) H-shares.

This flood of buying significantly narrowed that price gap.

The “Momentum Chasing” Trap

Once Shandong Molong’s (山东墨龙) H-shares were included in Stock Connect, they became a market hotspot.

This attracted a large number of short-term investors and speculative funds.

This influx of capital further pushed up the stock price, creating a classic “momentum chasing” effect and, as we saw, exacerbating price volatility.

Data Warning: High Probability of Retracement After Sharp Rises

Here’s where things get really interesting – and where caution is paramount.

Historical data clearly indicates that stocks experiencing sharp rises on their Stock Connect inclusion day have a relatively high probability of retracement (a pullback or decline).

Consider this: among the 19 stocks that gained over 20% on their inclusion day:

• 63.16% (nearly two-thirds) declined on the following day.
• Over a slightly longer period, the proportion of stocks declining within 5 days post-inclusion expanded to 83.33%.
• And 77.78% declined within 20 days post-inclusion.

The average declines for these periods are also telling:

• Average 5-day post-inclusion decline: 2.95%
• Average 20-day post-inclusion decline: A hefty 14.04%

Real-World Examples of Post-Surge Drops

Let’s look back at those earlier examples:

• Zhuangyuan Pasture (Zhuangyuan Muchang 庄园牧场) showed particularly sharp volatility. After its incredible 95% rise on inclusion day, it fell 17.02% the very next day. Its cumulative decline over the following 20 days reached a staggering 58.97%.
• Cosmopolitan International Holdings Limited (COSMOPOL INT’L) rose 76.68% on its inclusion day and tacked on another 25.2% the next day. But then, the tide turned. It began a sustained decline, accumulating a 45.4% drop over the 20 days post-inclusion.

Shandong Molong’s Own Retracement Story

The trading pattern of Shandong Molong (山东墨龙) H-shares on May 7 perfectly illustrated this risk of decline after a sharp rise.

Remember, the stock gained over 50% at its highest point that day.

However, it closed down over 6%.

That’s a price retracement of more than 35% from its intraday high to its closing price on that single day!

The takeaway? While the initial excitement of a Stock Connect inclusion can lead to spectacular, headline-grabbing gains, the data strongly suggests that these surges are often followed by significant pullbacks.

Investors eyeing these opportunities need to be acutely aware of the volatility and the potential for sharp reversals.

For long-term success, understanding the full cycle of Stock Connect inclusion and its aftermath is crucial for smart investing in these dynamic markets.

References

• 山东墨龙H股4日大涨450%！纳入港股通标的股价易暴涨暴跌？数据看背后 – Securities Times (证券时报网)
• About Stock Connect – Hong Kong Exchanges and Clearing Limited
• What Is Volatility in Stocks? – Investopedia
• Hong Kong stocks jump as mainland investors chase bargains via Stock Connect – Reuters