Chinese concept stocks "short squeeze surge", shorts have already lost a staggering $7 billion
Despite the recent rise in Chinese stocks listed in the US, short sellers are not rushing to close their positions. If the market continues to rise, analysts expect a significant short covering to further boost stock prices
Since the "924" new policy, the Chinese concept stock market has experienced turbulent waves. Today, the FTSE China A50 index futures continued to rise by over 8%. The CSI 300 index has risen by over 27% from its low point on September 13, and overnight, the Nasdaq Golden Dragon Index surged by over 36%.
According to a report by S3 Partners, short sellers have accumulated losses of $6.9 billion in this market trend, wiping out the profits of about $3.7 billion so far this year and resulting in current unrealized losses of approximately $3.2 billion.
Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3, stated in the report: "Short sellers have been building positions before the recent rebound." However, he added that the short selling activity in such stocks has slowed down since the rebound.
According to statistics from Huatai Securities, the average short selling ratio of the Hang Seng Index fell to 10.98% last week, further dropping to 7.46% on the 30th, reaching the 4th percentile since 2010; as of the 30th, the short selling ratio of Hong Kong Internet stocks rose to 4.6%, while the short selling ratio of Hong Kong real estate stocks fell to 9.4%.
The soaring stock prices of Alibaba and JD.com have caused heavy losses to short-selling investors. In the past 5 days, Alibaba's stock price has risen by nearly 20%.
In addition, short positions betting against companies such as Nio, Li Auto, XPeng, and Pinduoduo are still in a loss-making state.
Data shows that despite the recent rise in Chinese stocks listed in the U.S., short sellers are not rushing to close their positions. However, if the market continues to rise, S3 predicts that "a large number of short covering in this sector" will further boost stock prices.
Dusaniwsky stated: "If short sellers start to cover on a large scale, Alibaba's stock price may be most affected, as short selling of the stock has increased during this rebound." He also mentioned:
"Since short selling can no longer offset some of the bullish buying pressure on the stock, if there are fluctuations in the stock price, covering buys and bullish buying simultaneously may make the stock price trend steeper."