Chinese authorities tighten supervision of US-listed mainland companies
08 July 2021 US
Image: jamesteohart/adobe.stock.com
China’s moves to tighten controls on technology firms listed overseas are likely to trigger an acceleration in short selling activity on these stocks, according to research and analytics company S3 Partners.
In recent days, China’s telecommunications regulator ruled that mobile app providers should not market apps from Didi Chuxing, a China-based ride-hailing company, owing to concerns that it was making inappropriate use of customers’ personal data.
Didi’s share price fell heavily in days following this ruling, which came less than a week after the company began listing its shares on the New York Stock Exchange.
China’s policymakers provided additional signals that they will strengthen their supervision of China-based companies that have listings overseas.
This included requests to financial supervisors and accounting authorities around the world to strengthen cross-border cooperation over audits and to upgrade rules relating to cross-border data flows, data security and cybersecurity.
One consequence of this tighter regulatory grip over US-listed China and Hong Kong-based companies is that it is likely to trigger an acceleration in short selling activity in this group of stocks, according to S3.
S3 finds that, on balance, US-listed Hong Kong and China securities have been a profitable short trade during 2021, although it has taken until June to wipe off mark-to-market losses sustained during January and February when the share price rallied in a number of heavily-shorted stocks.
In mark-to-market profits for the month of June, shorts were up US$645 million, representing a 1.47 per cent profit on an average short interest of US$44.0 billion.
Alibaba Group and Tencent Holdings both featured in the list of the 10 most-profitable US-listed shorts for June, delivering a 30-day mark-to-market profit to short sellers of 0.73 per cent (for Alibaba) and 9.18 per cent (for Tencent).
Traders with short positions in the 20 most-shorted US-listed Hong Kong and China securities captured a return of US$840.5 million for June, a 2.66 per cent profit, on US$31.6 billion of short interest positions.
S3 predicts this is likely to be a harbinger of greater short selling activity in this group of stocks as recent price action “may be foretelling greater expected alpha [for short sellers] in the near term”.
In recent days, China’s telecommunications regulator ruled that mobile app providers should not market apps from Didi Chuxing, a China-based ride-hailing company, owing to concerns that it was making inappropriate use of customers’ personal data.
Didi’s share price fell heavily in days following this ruling, which came less than a week after the company began listing its shares on the New York Stock Exchange.
China’s policymakers provided additional signals that they will strengthen their supervision of China-based companies that have listings overseas.
This included requests to financial supervisors and accounting authorities around the world to strengthen cross-border cooperation over audits and to upgrade rules relating to cross-border data flows, data security and cybersecurity.
One consequence of this tighter regulatory grip over US-listed China and Hong Kong-based companies is that it is likely to trigger an acceleration in short selling activity in this group of stocks, according to S3.
S3 finds that, on balance, US-listed Hong Kong and China securities have been a profitable short trade during 2021, although it has taken until June to wipe off mark-to-market losses sustained during January and February when the share price rallied in a number of heavily-shorted stocks.
In mark-to-market profits for the month of June, shorts were up US$645 million, representing a 1.47 per cent profit on an average short interest of US$44.0 billion.
Alibaba Group and Tencent Holdings both featured in the list of the 10 most-profitable US-listed shorts for June, delivering a 30-day mark-to-market profit to short sellers of 0.73 per cent (for Alibaba) and 9.18 per cent (for Tencent).
Traders with short positions in the 20 most-shorted US-listed Hong Kong and China securities captured a return of US$840.5 million for June, a 2.66 per cent profit, on US$31.6 billion of short interest positions.
S3 predicts this is likely to be a harbinger of greater short selling activity in this group of stocks as recent price action “may be foretelling greater expected alpha [for short sellers] in the near term”.
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