“We’re not after China and I want to be clear about that. In fact, I would say that we are inclined to be bullish China and bearish AAC, over the long term. That does not mean that China’s economy will go straight up, nor that AAC’s stock will go straight down,” says founder Daniel Yu, who objects to short-seller research being described as an “attack”. “I don’t see what we do as attacks, I see what we find companies doing as an attack on the truth of markets.”
Hong Kong has, however, proved tricky territory for short sellers. They must deal with companies’ habit of suspending their shares in the wake of attacks — as all of the above did. Those with short positions then risk being trapped and unable to take profits. “Hong Kong does seem to be a market that needs attention and that’s what we’re looking for,” says Dan David, co-founder of Geoinvesting.
“But it is a difficult market in that it’s a bitter fight for sure.”
A market rally in Hong Kong this year has also lifted most stocks, providing a better level from which to borrow shares and sell short. The city’s blue-chip Hang Seng is up 14 per cent this year, outperforming most of the world’s major bourses.
The recent wave of attacks has also come as Hong Kong is debating how best to manage its markets following a series of stocks enjoying stunning rallies and sudden collapses such as Hanergy’s in 2015, where a fivefold rally over one year was followed by a near-halving in half an hour, since when it has been suspended.
The Hong Kong Securities and Futures Commission is currently reviewing the entire listings process and the exchange is due to consult soon on its market designed for fast-growing companies. Officials, meanwhile, say investors should put the dramas in perspective.
“In a market there are going to be headline cases — frauds and the like. But we shouldn’t get it out of proportion — we’re talking about a very small number of companies and market cap,” said one senior official.
But if the headlines keep coming, that perspective will get harder to maintain.