Chinese Short Target Plunges 41% as Nerves Fray in Hong Kong

(Bloomberg) -- A Chinese lender targeted by a short seller sank in Hong Kong on Friday, a day after a series of share plunges shook confidence in the city’s small caps.

Chong Sing Holdings FinTech Group Ltd. fell 33 percent to 6.8 Hong Kong cents at the close Friday, after earlier losing as much as 41 percent. More than 217 million Chong Sing shares changed hands, almost four times the past-year’s average, according to data compiled by Bloomberg. Calls to Chong Sing’s office went unanswered, while attempts to find the company’s official WeChat page, as shown its website, were unsuccessful.

Traded on the city’s Growth Enterprise Market, Chong Sing has lost more than 80 percent since short seller Bonitas Research questioned the company’s financial reporting in September, saying the stock was worth zero. At the time, Chong Sing said in a statement that the report contained “malicious speculations, false allegations and obvious factual errors.”

Chinese Short Target Plunges 41% as Nerves Fray in Hong Kong

“We are unsure of today’s stock price movement, but speculate that it’s from the unwinding of secured margin financing arrangements,” Bonitas Research founder Matt Wiechert wrote in an email. “Our report highlighted Chong Sing stock manipulation in the last hour of trading, and we suspected insiders historically pledged shares for loans.”

Wiechert, who started Bonitas Research in Texas, said he closed his short position in Chong Sing after the company was kicked out of the MSCI China index in November, making it harder to borrow stock.

At least 10 companies tumbled 20 percent or more in Hong Kong on Thursday, wiping out HK$37.4 billion ($4.8 billion) in market value, with Jiayuan International Group Ltd., Sunshine 100 China Holdings Ltd. and Rentian Technology Holdings Ltd. falling more than 75 percent in a matter of minutes. Such sudden plunges aren’t uncommon in Hong Kong, where a controlling shareholder can borrow against stock and not disclose as long as it’s for personal finance reasons.

The wild moves haven’t roiled confidence in the broader market. The Hang Seng Index rose 1.3 percent Friday, completing its first three-week gain in almost a year.

©2019 Bloomberg L.P.