Deconstruction of Short Institution Business: Industrial Chain Killing Risk-free Arbitrage

category:Finance
 Deconstruction of Short Institution Business: Industrial Chain Killing Risk-free Arbitrage


Hunting good companies

ARAL BUSINESS WITH FAKE FINANCIALS was the first short report to snipe the future in muddy waters last year.

This report sends an important signal. Famous organizations like Muddy Water have begun to focus on businesses with Real Business. For example, although Muddy Water believes there is fraud in Anta Sports and the future is good, it admits that it has a real business rather than a complete fiction. And in the short report, muddy water no longer gives the exact target price.

Bolidas, the new short force, chose to fight high. Matthew Wiechert, founder of Glaucus, another well-known short-selling agency, was founded in 2018. Bolidas has repeatedly used Glauxs radical style, such as in the face of Haosha International, Sino-Singapore Holdings, Hengan International, Boston and other short-selling targets, and has successively given a value of 0 valuation.

However, as a whole, Anta Sports, Bosten, Zhou Heiya and Hengan International, which have been targeted by short-sellers in recent years, are well-known entities. Compared with the short-selling trend from 2010 to 2011, these companies are generally well-known and have a high market value, which is quite different from the image of fraudulent listed stocks or shell companies in the past.

In the unprecedented future, the stock price will continue to rise, and the market value will reach a historical high, which is the highest in the field of education in China; Anta Sports reported the best performance in the past year, with the market value exceeding 100 billion yuan; Bostons strategic transformation will gradually come to the ground, and its performance in fiscal year 2018/2019 will exceed expectations, etc.

From the point of view of operation mode, these companies are mostly chain-operated enterprises. This is also in line with the survey methods of short-selling agencies.

For example, in Zhou Hei Ducks short report, from July to September 2018, Emersons investigators visited all ZhouHei Duck retail stores in central China, questioning the companys real business in the area; in short Anta Sports, Muddy Water accused Anta of using a number of secretly controlled primary distributors to deceive. Increased profit margin. Evidence included interviews with four former senior managers of Anta and one former manager of a major dealer.

In addition, since the opening of Shanghai, Hong Kong and Shenzhen, short-selling institutions seem to prefer Hong Kong-listed companies, including Anta Sports, Boston, Zhou Heiyak and Hengan International.

In addition to in-depth investigation and identification of corporate financial fraud, in tracking short-selling clues, some insiders told the Securities Times e Company reporters that some law firms, accounting firms provide fraud services for enterprises, but also backhand to sell these information to short-selling institutions.

Gu Air Conditioning Inspection Company is not a charity, the short-selling mechanism of the external dish has brought considerable benefits to it. Reporters from Securities Times E found that short-selling institutionsearnings are not complicated and can almost be called risk-free arbitrage. Usually we find some listed companies that have discrepancies in their accounts. Short-sellers first short at high positions, and then investigate companies to issue reports, which cause investors to panic, resulting in the stock price plummeting, thus short-sellers seek private profits from them.

Reporters from the Securities Times E Company found that short-selling companies, including Boston, Zhou Heiyak and Good Future, experienced a wave of ups in the early period of the release of the short-selling report. A foreign hedge fund insider told reporters that survey companies often send reports to cooperative funds in advance. Hedge funds usually pull up the stock price before setting up short positions, so that by selling high and buying low, there will be a lot of room for profit.

A person in the industry told e company reporters: Short-selling is to be quick and cruel, most investors can not judge the rationality of the report in a short time, coupled with the high-risk characteristics of the capital market itself, the first reaction after the emergence of bad news is to close positions and stop losses. In this case, the more exaggerated the words, the easier it is to create panic. In addition, the main force will also sell a large number of shares on the day, leading to a sharp decline in the stock price in a short time, further triggering panic in the market with the tide.

In recent years, short-selling institutions for Chinas concept stocks have developed rapidly, and organizations such as Muddy Water and Citron have made brilliant achievements. In conclusion, the logic of success lies in making full use of information asymmetry.

Firstly, almost all the selected hunting companies have imperfect information disclosure. Because of the disclosure system of Hong Kong stocks, many financial information are voluntary disclosure. Some listed companies achieve false profits through a large number of disclosed and undisclosed subsidiaries. At the same time, the information of these important subsidiaries, without compulsory disclosure obligations, gives the company a huge space for cross-market financial fraud and very low illegal costs. Taking Bostens short report as an example, the corporate credit report obtained by the short-selling agency from the Industrial and Commercial Bureau of China is not public information. By comparing the data of credit report and public disclosure of financial report, the short-selling agency finds out the financial side, which becomes one of the main evidences of the short report.

From a hit to a miss

In the recent round of short-selling, from the good future to Zhou Heiya, Bosten, Anta Sports and so on, short-selling institutions have focused on some well-known brand companies.

In the battle with these high-profile companies, short-sellers seem to be less sharp than they used to be. Although the stock price will fall significantly on the day of short selling, the time will be slightly prolonged, and the trend of stock price even stands on the side of many short-selling companies.

To sort out some well-known short-selling cases in the past year or so: in the Hong Kong stock market, the immunity of listed companies to short-reporting is increasing, and many companiesshare prices have rebounded to unprecedented levels in the short term, far exceeding the target price of short-selling institutions. Even if the first day of short-selling falls sharply like Boston, the stock prices will soon reverse. Relatively speaking, Chinas shares listed in the United States have been hit harder, but most of them can recover in the year.

On December 12, 2018, Bonitas Research short Heng An International with a target price of HK$0. The latter fell 5.7% to HK$55.76 on the same day. The companys share price then rocked higher and rebounded to an unprecedented level more than a month later. In late April this year, Hengan Internationals stock price once stood at HK$70, and now falls back to HK$55.35.

On March 1, 2019, Emerson short Weekly Black Duck with a target price of HK$2.4. The companys share price rose 2.5% the next day (March 4). It was suspended on March 5, and fell 2.44% on March 6, when it resumed trading, to HK$3.46. After the adjustment in the second quarter, the companys current price is HK$4.33.

On June 24, 2019, Bolidas shorted Boston at a target price of 0 yuan. The company collapsed 24.78% to HK$1.73. However, in less than a week, Bostons share price surpassed its unprecedented level, closing at HK$2.53.

On June 13, 2018, muddy water short the future without giving a target price. Shares of the company fell 9.95% to $41.11 on the day. The companys current price is $36.8.

On April 16, 2019, JCapital shorted Ultra Credit, saying it was unable to value it. Shares of the company fell 36.07%, from $3 to $1.95. The companys current price is $2.3.

Although data over the past year show that the short-selling effect of China Capital Stock Market is much worse than before, the two sides often confront with each other in many rounds of short-selling events. Some companies have even been stalked by multiple short-sellers for a long time. For example, since last year, Anta Sports has been repeatedly sniped by short-selling agencies such as GMTResearch and Blue Orca Capital. Recently, Muddy Water has issued two short reports on Anta Sports. Therefore, whether listed companies can get out of the shadow of being short remains to be seen for a longer period of time. Moreover, the stability or rise of stock prices during the period of short-selling cannot be equated with the existence of problems in the company itself. In December 2016, Hunshui issued a series of short reports, believing that Huishan Dairys equity value was close to zero. But after the report was released, the companys share price fluctuated only slightly. However, on March 24, 2017, Huishan Dairys share price suddenly collapsed and plunged 85%, which led to the companys huge debt crisis. Since then, the company has tried many times to save itself, and has not yet escaped the risk of delisting. Source: Responsible Editor of Securities Times: Yang Bin_NF4368

Although data over the past year show that the short-selling effect of China Capital Stock Market is much worse than before, the two sides often confront with each other in many rounds of short-selling events. Some companies have even been stalked by multiple short-sellers for a long time. For example, since last year, Anta Sports has been repeatedly sniped by short-selling agencies such as GMTResearch and Blue Orca Capital. Recently, Muddy Water has issued two short reports on Anta Sports. Therefore, whether listed companies can get out of the shadow of being short remains to be seen for a longer period of time.

Moreover, the stability or rise of stock prices during the period of short-selling cannot be equated with the existence of problems in the company itself.

In December 2016, Hunshui issued a series of short reports, believing that Huishan Dairys equity value was close to zero. But after the report was released, the companys share price fluctuated only slightly. However, on March 24, 2017, Huishan Dairys share price suddenly collapsed and plunged 85%, which led to the companys huge debt crisis. Since then, the company has tried many times to save itself, and has not yet escaped the risk of delisting.