By Lynn Thomasson
June 13 (Bloomberg) -- Short selling in Hong Kong has risen to the highest level since September 2010 as concerns of slowing Chinese economic growth and further monetary-policy tightening intensify, according to report from Data Explorers.
Borrowed shares have risen to 12.2 percent of stock available for lending as of June 7, compared with 8.8 percent in January, Data Explorers, a New York-based research provider, wrote in a report June 9. The increase comes as Chinese companies listed in Hong Kong, Canada and the U.S. face pressure from short sellers amid allegations of lax corporate governance and fraud.
?The Hong Kong equities market has become progressively more short,? wrote Will Duff Gordon, a senior research analyst at Data Explorers. The increase in short sales ?has been driven by a sell-off of holdings by institutional investors coupled with strong demand to borrow equities.?
The Hang Seng Index has slumped 2.7 percent this year as Chinese policymakers raised interest rates four times since October. Consumer prices in the world?s second-largest economy may climb 4.7 percent in 2011, based on economists? estimates compiled by Bloomberg. That exceeds the Beijing government?s target of 4 percent.
?A lot of people are of the view that property is in a massive bubble in China and perhaps they?re betting on a collapse in that area,? said Puru Saxena, who oversees about $350 million as chief executive officer of Puru Saxena Wealth Management in Hong Kong.
The most shorted stock in the Hang Seng Composite Index is Chaoda Modern Agriculture (Holdings) Ltd. with 18 percent of its shares outstanding on loan, according to Data Explorers. The vegetable producer based in Fuzhou, located in China?s southeastern Fujian province, has lost 47 percent this year. Hong Kong?s Next magazine reported on May 26 that the company overstated the size of some of its farms in China. Chaoda said the claims were false in a filing to Hong Kong?s stock exchange.
Muddy Waters
In Canada, shares of Sino-Forest Corp., a tree plantations operator based in Hong Kong and Mississauga, Ontario, have plunged since a report dated June 2 by Muddy Waters Research said public disclosures don?t match Chinese city records and that its production figures may not be accurate. Shares in the company, which has denied the allegations, have fallen 75 percent since June 1.
Short selling more than doubled to a record 35 percent of Sino-Forest?s outstanding stock as of June 2, according to Data Explorers. The figure started climbing four weeks earlier, from 17 percent on May 2. Sino-Forest is the most-shorted stock in the Standard & Poor?s/TSX Composite Index.
Deer Consumer Products Inc. and Sino Clean Energy Inc., U.S.-listed Chinese companies battered by fraud allegations in online reports, filed defamation lawsuits in New York against a blogger who uses the pseudonym Alfred Little and websites that published his blogs. Deer?s shares on the Nasdaq Stock Exchange have lost 20 percent of their value since March 17 when a version of a negative report by ?Little? appeared on the Seeking Alpha investing website. Deer and Sino Clean have denied the allegations.
In a short sale, a trader borrows shares and sells them. If the price drops, the trader profits by buying back the stock at a lower price, repaying the loan and pocketing the difference.
--Editor: Nick Gentle
To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net.
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.
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