(Bloomberg) — A dramatic stimulus-fueled rally in Chinese stocks caused about $6.9 billion worth of market losses as traders bet against U.S.-listed stocks, according to a report by S3 Partners.
Most Read from Bloomberg
The country’s main index, the CSI 300 index, rose more than 27% from its Sept. 13 trough, supported by several policy easing measures, while the Nasdaq Golden Dragon index of US-listed Chinese stocks rose more than 36%. That wiped out about $3.7 billion in year-to-date profits, and Left Shorts now has a $3.2 billion paper loss, according to Market Analytics.
“Before the recent rally short sellers profitably built up their positions in a falling market,” Ihor Dusaniwsky, managing director of predictive analytics at S3, said in the report. However, since the recovery, short selling has declined in the group, he added.
Shorting Chinese stocks was a popular strategy before Beijing surprised the market with its stimulus plans, with many market watchers underestimating the sector and some labeling the country “uninvestable”. Last month, 19% of respondents to a Bank of America Corp. global fund manager survey said shorting Chinese stocks was the most crowded trade, second only to the so-called Magnificent Seven technology stocks.
Alibaba Group Holding Ltd. and JD.com Inc. were the most painful trades for short sellers, S3 data show. On the other hand, Nio Inc., Li Auto Inc., XPeng Inc. and PDD Holdings Inc. Traders who bet against are still in the black.
Even with the recent rally in US-listed Chinese stocks, short sellers are still in no rush to cover their positions, the data shows. Still, if the market continues to advance, S3 expects share prices to rise further “in the field of significant short covering.”
“Baba’s stock price could see a huge impact if the short-selling volume of the stock has increased during this rally,” Dusaniewski said. “Short selling doesn’t offset the long buying pressure on the stock, and long buying along with sideways buy-covers can push the track higher if its price moves.”
Most read from Bloomberg Businessweek
©2024 Bloomberg LP
2024-10-02 05:11:54