A stunning turnaround in China’s stock market has inflicted a staggering $6.9 billion in losses on traders who bet against US-listed Chinese shares, according to a report by market analytics firm S3 Partners. The benchmark CSI 300 index has soared over 27% since its mid-September low, fueled by a series of policy easing measures, while the Nasdaq Golden Dragon index of US-listed Chinese stocks has skyrocketed over 36%. This remarkable rebound has erased $3.7 billion in year-to-date gains, leaving short sellers with a hefty $3.2 billion in paper losses.
Prior to the rally, short sellers were raking in profits as the market plummeted, but since the turnaround, they have been slow to adjust their positions. In fact, short selling in the group has slowed significantly, according to Ihor Dusaniwsky, managing director of predictive analytics at S3.
Before Beijing’s surprise stimulus announcement, shorting Chinese stocks was a popular strategy, with many market observers underweighting the sector and some even labeling it “uninvestable.” However, the tide has turned, and short sellers are now facing significant losses, particularly in Alibaba Group Holding Ltd. and JD.com Inc.
On the other hand, traders who bet against Nio Inc., Li Auto Inc., XPeng Inc., and PDD Holdings Inc. are still in the black. Despite the recent rally, short sellers are hesitant to cover their positions, but if the market continues to advance, S3 expects a significant amount of short covering to drive stock prices even higher. Alibaba Group Holding Ltd. is particularly vulnerable to a short squeeze, which could propel its stock price even higher if shorts begin covering in size.
Leave a Reply