Investors betting against US-listed shares of Chinese companies likely incurred steep losses during the last two weeks of September, as optimism around wide ranging economic stimulus measures sparked a sharp rally, according to data from S3 Partners.
China-focused stocks and exchange traded funds have been on an explosive run since the country’s central bank kicked off aggressive stimulus efforts on Sept. 24, with several new fiscal and monetary policy measures announced in the subsequent days.
Investors shorting US listings of Chinese companies lost about $6.9 billion in mark-to-market losses between Sept. 13 and Oct. 1, S3 Partners said in a report.
The top most heavily shorted U.S. listings – Alibaba Group, PDD Holdings and JD.com – have gained 33.8%, 66.8%, and 67.9%, respectively, between Sept. 13 and Thursday’s close.
Mark-to-market losses on Alibaba alone were over $2.3 billion.
Betting against China has been a popular trade for much of this year, as persistent economic woes weighed on investor appetite for its markets.
“China has had a lot of problems, so everyone is really short … they got panicked, and that’s why you saw that big rally,” said Phil Pecsok, CEO of Anacapa Advisors.
However, despite the losses, short sellers only selectively moved to close short positions in the last week, S3 said.
After the stimulus measures, China‘s blue-chip index soared nearly 25% between Sept. 24 and Sept. 30 before closing for a week-long holiday, while Hong Kong stocks are at a 31-month high.
Additionally, investors shorting popular China-focused exchange traded funds incurred losses, with those shorting the iShares China Large-Cap ETF down over $1 billion year-to-date. The fund is the most heavily shorted U.S.-listed China ETF.
“If the rally continues, we should see squeeze-related short covering in many of these securities as short sellers trim their exposure,” said Ihor Dusaniwsky, managing director at S3 Partners, adding this could push prices even higher.
Reuters