For Short Sellers Haunted by Retail Boom Asia Is The Place to Be
(Bloomberg) -- Asia’s short sellers can rest easy, as they look largely free from attack unlike peers in the U.S. where retail investors have banded together to squeeze out bearish bets.
An equal-weighted basket of the 30 MSCI Asia Pacific Index members with the highest short interest has declined about 1% in the past month through June 8, underperforming the benchmark by two percentage points, according to calculations by Bloomberg using IHS Markit data. In contrast, the most-shorted American stocks have surged in the past month.
The meme-stock mania has roared back stateside, with chatter building up in the Reddit forum WallStreetBets on popular short targets like Clover Health Inc., Workhorse Group Inc. and Virgin Galactic Holdings Inc. By and large, Asia has yet to see such a sudden flurry of demand from retail investors, making the region a safer place to bet on stock price declines.
“We don’t have things like WallStreetBets to gather all the people to squeeze the shorts,” said Alex Wong, director of asset management at Ample Capital in Hong Kong. “It is difficult to find a successful precedent in places like Hong Kong to convince a large crowd to do such a trade.”
Average short-interest in the Asia basket as a percentage of free float increased to 14.5% last week from 10.8% at the beginning of the year, according to the IHS Markit data. That suggests investors haven’t been shy in boosting their bearish bets against the cohort, even after the first-quarter Reddit frenzy when retail traders targeted stocks with large short positions.
While meme stocks in the U.S. have attracted worldwide attention, retail participation in Asia “is not global enough” and is more focused on home markets, Wong added. “Just think how many Hong Kong investors have accounts in Japan or Taiwan.”
Hong Kong is the key destination for Asia’s short sellers, with 70% of the stocks in the basket listed in the city. Xinjiang Goldwind Science & Technology Co. has about 30% of its free float shorted, the most in Asia’s equity benchmark. China Covid-19 vaccine developer CanSino Biologics Inc. has a short-interest ratio of 16%, according to data compiled by Bloomberg.
Still, short sellers have faced some resistance from retail investors in places like South Korea, where day traders rushed to bid up shares of Doosan Heavy Industries & Construction Co. by as much as 160% from mid-May through Monday. Earlier in the year, Malaysian amateur investors failed to squeeze short positions in the nation’s glove makers.
Asian investors may “prefer to ride on an existing trend rather than trying to start a ‘movement’,” said Yeap Jun Rong, a market strategist at IG Asia Pte. “This is considering that previous attempts to ignite short squeeze in some glove makers in the region did not seem to work out.”
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