Success Rate of International Short Sellers’ Actions Against China Shares Is Up to 75%
(Yicai Global) June 16 — Instances where overseas institutions like Muddy Waters LLC, Glaucus Research Group California LLC and Anonymous Analytics have engaged in short selling of China concept stocks and domestic shares have frequently arisen in recent years.
Over the half decade since 2012, the above three achieved an average success rate of 75 percent when short selling China concept stocks and domestic shares, per statistics of National Business Daily.
After being a target of these short sellers, some companies have been suspended for years, or even forced to delist. Taking Anonymous Analytics as an example, in the recent five years, Chinese companies it targeted all listed domestic shares on the Hong Kong Exchange. This short seller made six attempts in total to short sell domestic shares since 2012, and specially hunted down the two domestic shares of Credit China [HK:08207] and REXLot Holdings Ltd. [HK:00555]), with two short-selling reports issued. Over the five years, the most successful case was the short selling of Tianhe Chemicals Group Ltd. [HK:01619]. Since the short-selling report emerged, the maximum single-day drop in this company’s shares reached 44.98 percent. In the half year after the report was outed, the cumulative drop of its shares hit 44.86 percent, and trading has now has been suspended since March 2015.
The success rate of Anonymous Analytics in short selling China concept stocks and domestic shares over the half decade has been as high as 75 percent. Nevertheless, its two attempts to short sell Credit China had little effect. After the first short selling, the share price of Credit China rose by 36 percent within the half year, rather than dropping. After the second short selling over a month ago, its share price remains virtually unchanged.
Muddy Waters also has no flies on it as a short selling activist. Over the five years, China concept stocks and domestic shares targeted by Muddy Waters have included New Oriental Education & Tech Group [NYSE:EDU], NetQin [NYSE:NQ], Superb Summit [HK:01228], and Huishan Dairy Holdings Co.[HKG:06863].
Huishan Dairy and Superb Summit are still in suspension, and NetQin has cumulatively slumped 85.2 percent. In other words, Muddy Waters’ kill rate of China-related stocks and domestic shares short-selling is therefore 75 percent. The share price of the only ‘survivor’ — New Oriental — has surged 208.50 percent thus far.
The other emerging short-selling company, Glaucus Research, has made 12 attempts in five years. The most well-known case is Tech Pro Technology Development Ltd. [HK:03823]. Its share price plummeted 91.19 percent in one day due to short selling. Among the 12 short-selling cases Glaucus Research has initiated in the past five years, only West China Cement Ltd. [HK:02233], Full Share Holdings Ltd. [HK:00607] and Fang Holdings Ltd. [NYSE:SFUN] survived. In general, Glaucus Research’s hit rate of China-related stocks and domestic shares short-selling is also as high as 75 percent.
Moreover, Citron Research has taken almost no action in China-related stock and domestic shares in the last five years because after it attacked Evergrande Real Estate Group Ltd. [HK:03333] Hong Kong’s Securities and Futures Commission (SFC) accused it of releasing false information and misleading investors, ultimately banning it from the Hong Kong market for five years. Evergrande’s share price has soared 413.02 percent since the release of this short selling report.
Aside from the SFC unpleasantness, the overall global short-selling performance of Citron Research has been outstanding. From 2001 to 2014, Citron Research issued short selling reports against 111 global companies, the Wall Street Journal reported. The average decline of a company’s share price has been 42 percent within one year after a report issues. The S&P Capital IQ data shows, the share prices of 90 of 111 companies have dropped in the one year after such reports issued, while only 21 rose. That is to say, over 14 years, the hit rate of Citron Research has been as high as 81 percent.
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