Total short-selling activity in Hong Kong Monday stood at HK$14.3 billion ($1.8 billion), or 22.9% of all shares traded.

Short-selling can cause a rout in stocks but it can also make for sharp upswings when speculators are forced to cover their short positions by buying the stock back in the event of a sudden (a “short-squeeze”).

Here’s a look at the top 3 stocks (excluding tracker funds, i.e. companies only) that were being shorted in Hong Kong Monday by total volume of shares traded and a break-down of what traders are saying:

#1 – China Construction Bank Corporation (OTC:CICHY)

Summary: CCB was in top spot among Hong Kong companies being targeted by short-sellers with HK$666.4 million, or 37.4% of its volume representing short positions being taken. The company’s stock price was 0.22% lower on the day.

Reason: Traders were bearish on the stock after reports in the Chinese-language press that non-performing loans are sharply on the rise. Data from the Yingdeng Center showed that for the third quarter of 2023, delinquent loans hit 39.12 billion RMB ($5.4 billion), its highest on record for a single quarter.

Squeeze View: Banks did well last week as China’s sovereign fund snapped up shares in the country’s four leading banks, including CCB. The fund said that it would continue with share purchases in these banks over the next six months. China’s government is also showing willingness to incentivize lenders to increase auto-loans to consumers, which could be a plus for banks.

#2 – AIA Group Ltd (OTC:AIAGY)

Summary: Insurer AIA was second on the list of the top three short-seller targets, with HK$437.05 million or 33.5% of the company’s shares sold short. AIA shares ended the day’s trading flat.

Reason: Insurance firms are on a sector watchlist as investors fear these firms may have exposure to real estate debts that are as yet still unknown after a Bloomberg report Monday morning concerning Ping An Insurance Co of China Limited’s (OTC:PNAGY) hidden balance sheet debt. AIA and Ping An both poured billions into commercial property in China earlier this year too.

Squeeze View: AIA has been one of the largest buyers of its own stock this month, believing the shares to be priced too cheaply.

#3 – BYD Company Limited (OTC:BYDDF) (OTC:BYDDY)

Summary: EV maker BYD was in third place among the top Hong Kong-listed short-sold equities as sellers targeted HK$322.6 million, or 24.4% of the company’s daily turnover for short positions. BYD shares ended down 1.2% on the day.

Reason: Strong sales for Huawei Technology’s AITO M7 have led Li Auto Inc (NASDAQ:LI) to cut prices according to Chinese language newswire Cailian. That report sparked fears of lower margins for BYD in the ongoing EV price war. Recent selling pressure from shareholder Berkshire Hathway Inc (NYSE: BRK-A), which has been disposing of a chunk of its stake in BYD has incentivized short-sellers too. Added to this, there are concerns about the strength of the Chinese consumer sector which would affect the company’s sales outlook and about the upcoming earnings for rival Tesla Inc (NASDAQ:TSLA)

Squeeze View: BYD is aggressively improving both sales and margins despite a price war for EVs. The company is valued at a fraction of the earnings of Hong Kong-listed rivals XPeng Inc (NYSE:XPEV), Nio Inc (NYSE:NIO) and Li Auto, and is in a stronger selling position globally among both luxury and cheap vehicle sales than any of these brands, especially Huawei. BYD is beating Tesla on total sales volume worldwide this year.

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