Short-sellers reap huge profits from ‘hunting’ Chinese companies

Overseas-listed Chinese companies have been suffering from short selling in the past two years. The Chinese concepts stocks listed in the United States have been frequent targets of short-selling funds. By spreading rumors about Chinese companies’ “poor management” and “suspicious accounting,” these funds first drive a stock’s price down, and then capitalize on the expected decline in the stock’s price.

Share prices plunge due to short selling

Short-sellers recently targeted Evergrande Real Estate Group, the second largest real estate developer in China. On June 21, professional U.S. short-seller Citron Research published a 57-page report accusing Evergrande of using accounting tricks and bribes to hide the fact that it is truly insolvent. Evergrande’s share price tumbled immediately after the publication of the report, and the company’s market value shrank by over 7.6 billion yuan. Trading volume increased 12-fold on June 21 from the previous trading day, of which, the volume of short sales increased nearly 30-fold. Evergrande’s share price continued to fluctuate sharply and closed lower on June 22, falling nearly 15 percent in just two days.

Many other Chinese companies have also suffered from short selling. Unfounded allegations against Chinese companies listed in North America by Carson Block, founder of Muddy Waters Research, John Hempton, chief investment officer at Australian money manager Bronte Capital, and other short-sellers had been the catalyst that had wiped more than 21 billion U.S. dollars off the market value of these overseas-listed Chinese companies, Reuters reported last year.

U.S. short-sellers have pushed the prices of most Chinese concepts stocks down, with 39 concepts stocks facing delisting risk and over 10 stocks planning to delist.