Short Sellers Return to Hong Kong After Stocks Enter Bull Market

(Bloomberg) -- Short sellers are returning to Hong Kong, as investors begin to question the sustainability of this year’s stock market rally.

Hong Kong’s short selling turnover climbed to 15 percent of the total value traded on Tuesday, the highest since January, according to data compiled by Bloomberg using five-day moving average. Just two weeks ago, the ratio was at this year’s low of 12 percent as the Hang Seng Index reached a 10-month high. The equity benchmark has since struggled to hold above the key 30,000 level.

"The 30,000 level has become a hurdle for the Hang Seng Index -- more people are becoming worried whether the market will rally further," said Hong Kong-based strategist Linus Yip at First Shanghai Securities Ltd. "Many investors have begun to hedge by adding short positions in some high flyers like auto and pharma stocks."

Bears have targeted Sino Biopharmaceutical Ltd., the second best performer on the Hang Seng gauge this year, sending its short interest as a percentage of free float to the highest in nearly two years, according to data from IHS Markit Ltd. Shorts have also increased for BYD Co., whose shares have rebounded 27 percent from this year’s low in January, and pork giant WH Group Ltd. which has surged 56 percent in 2019.

After rallying 15 percent this year, the Hang Seng Index has been stuck in a range, unable to make a meaningful break above its key resistance level. Sentiment has soured in recent days over concerns that China may slow down its easing measures and focus on deleveraging. The gauge fell 0.5 percent to close at 29,805.83 on Wednesday, after trading above 30,000 briefly in the morning.

To contact the reporter on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Kana Nishizawa, David Watkins

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