Market Overview

Short Sellers Pile Into China Stocks Following July Rally

Short Sellers Pile Into China Stocks Following July Rally

Chinese stocks have been on fire in the past month, with the Ishares China Large-Cap Etf (NYSE: FXI) more than doubling the return of the S&P 500 in that time. But according to a new report from S3 Partners analyst Ihor Dusaniwsky, short sellers are taking advantage of the bullish momentum to increase their bets against U.S.-listed China stocks.

Dusaniwsky said Monday there is currently about $40 billion in short interest among U.S.-traded China stocks, and they have experienced $247 million in net short selling so far in July.

Most Shorted China Stocks

Alibaba Group Holding Ltd - ADR (NYSE: BABA) has by far the largest short interest of any U.S.-listed China stock at $10.34 billion. Pinduoduo Inc - ADR (NASDAQ: PDD) is a distant second at $3.86 billion followed by GSX Techedu Inc (NYSE: GSX) at $2.61 billion.

Pinduoduo has been the biggest target for domestic China short sellers in the month of July. Pinduoduo’s short interest is up by $366.4 million so far this month more than any other U.S.-listed China stock. Nio Inc - ADR (NYSE: NIO) has experienced the second-largest increase in short interest so far this month with $284.2 million in net new short interest. NetEase Inc (NASDAQ: NTES) is third at +$112.7 million.

“All three stocks hit year-to-date highs in July and short sellers look to be building positions in overbought or recently overheated stocks and looking for a pullback,” Dusaniwsky said.

But short sellers are also exiting their positions in certain U.S.-listed China stocks. GSX Technologies has experienced $415.4 million in short covering so far in July, more than any other China stock. Bilibili Inc - ADR (NASDAQ: BILI) is second at $63.4 million in short covering followed by DBX ETF TR/X-TRACKERS HARVEST (NYSE: ASHR) with $54.8 million in short covering.

Benzinga’s Take

U.S. traders can anticipate volatility in U.S.-listed China stocks heading into the November election. There will likely be plenty of negative political rhetoric related to China from both sides of the political aisle, but a potential Joe Biden victory could open the doors to a normalization of U.S.-China trade relations following a contentious Donald Trump presidency.

Do you agree with this take? Email with your thoughts.

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