China's Hottest Stock Is Suddenly Back in Short-Sellers' Sights

(Bloomberg) -- Short-sellers are targeting the best-performing Chinese stock of 2017.

Short interest in China Evergrande Group tripled in the wake of an HK$18 billion ($2.3 billion) convertible bond issue at the end of January, surging from an almost five-year low.

The company’s dollar bonds have also been targeted, indicating that “people are betting against anything relating to the firm,” according to Jason Yang, a Singapore-based analyst at IHS Markit.

China's Hottest Stock Is Suddenly Back in Short-Sellers' Sights

Three reasons why the bears may be back:

  • Danielle Wang, an analyst at DBS Vickers Hong Kong Ltd., said that buyers of the bonds, which may later convert into shares, could have been shorting to hedge their investments.
  • Gillem Tulloch, of GMT Research Ltd. in Hong Kong, said investors may believe the developer will stop “managing up” the share price, after successful capital-raising efforts, which have included selling equity. Share buybacks and stock purchases by allies had helped boost Evergrande shares last year.
  • There’s been a pullback for Chinese developers in general. They’ve tumbled from a late January peak on investors’ concerns that last year’s gains were overdone and amid strict government controls over the housing market.

No comment was immediately available from Evergrande.

The bearish bets -- and a 17 percent decline in share price this year -- came after the debt-heavy builder last year beat back short-sellers.

One side-effect of the declines: the wealth of Evergrande’s founding Chairman Hui Ka Yan shrank by $6.3 billion this year to $29.7 billion, according to the Bloomberg Billionaires Index. Last year, the firm’s share price rose 458 percent.

©2018 Bloomberg L.P.