After the end of the 20th National Congress of the Communist Party of China (20th NC of CCP) last week, the collective slump in Chinese concept stocks has brought huge returns to investors who shorted the stocks. Traders made a profit of up to 4.4 billion US dollars in short-selling transactions on Oct. 24 and 25.
The 20th NC of CCP closed on Oct. 22. On Oct. 24, China’s A-share stock market experienced a “Black Monday,” during which the Chinese concept stocks and Hong Kong stocks were both under the devastating impact of the slump.
Chinese concept stocks plummeted, and many Chinese companies’ stock prices fell by double digits, such as Alibaba (NYSE: BABA), down 10.99 percent, JD.com (NASDAQ: JD), down 14.09 percent, Pinduoduo (NASDAQ: PDD), down 14.96 percent. In addition, XPeng (NYSE: XPEV) fell 9.96 percent, just one step away from a double-digit decline; NIO (NYSE: NIO) also fell 8.39 percent.
According to a report released by American financial analysis firm S3 Partners on Oct. 28, when Chinese concept stocks were sold off on October 24 and 25, traders made a profit of up to US$4.4 billion in short-selling trades of 59 billion, with an average return. The rate reached 7.5 percent.
Bloomberg reported that investors are betting against the Chinese concept stocks and Hong Kong stocks. Data shows that the vast majority of short positions were money makers; and that the decline in Chinese concept stocks is pertaining to the uncertain macro picture following China’s leadership reshuffling.
Short selling is an investment term that refers to the sale of an asset or stock the seller does not own but in hopes of trading when the assets depreciate and making profits from them.
Mike Sun, a North American investment strategist and China expert, told The Epoch Times on Nov. 3 that those who shorted Hong Kong stocks made a lot of profit, “and the power of shorting has always existed.” The investors have very low expectations for the Chinese concept stocks and Hong Kong stocks.” Before the new policy was clearly introduced, companies did not know where to go, causing the stock market to slump and investors to wait and see.
“After the 20th NC of CCP, the CCP abandoned the market economy, and investors worried that the Chinese economy would go all the way down. What the capital market is most afraid of is the political factor.
The Hang Seng Index of Hong Kong (HSI) fell on Oct. 24 to the same level as on June 27, 1999, which was the last stock trading day before the handover of Hong Kong’s sovereignty 25 years ago. On June 27, the last stock market trading day before the handover to the Chinese communist regime in 1997, the HSI closed at 15,196. On Oct. 24, 2022, the HSI closed at 15,180.69, the lowest of the day at 15,091.
The HSI has even fallen to a new low of 14,687.02 on Oct.31.
According to statistics released on Nov. 1, in October, the Hang Seng Shanghai-Shenzhen-Hong Kong Stock Connect 500 Index fell by 8.6 percent month-on-month, and the Hang Seng A-Share Connect 300 Index fell by 7.5 percent month-on-month. The former reflects the performance of the largest 500 Chinese companies listed in Hong Kong or mainland China and is designed to reflect the overall picture of Chinese listed companies; the latter tracks the performance of the largest 300 A-shares.
Mike Sun once told The Epoch Times on Oct. 27 that the stock market crash on Oct. 24 was actually “the reaction of global investors given to the new leadership of the CCP in the 20th National Congress”, and the stock market rebounded on the Oct. 25 and 26, which is the so-called “national team” of the CCP intervening, but the role of supportting is only “short-term.”
Although Chinese concept stocks rebounded on Oct. 25 and 26, they continued to decline on the 27th and 28th. Taking Alibaba (NYSE: BABA) as an example, the closing price of the stock on the 26th was US$68.56. After the opening of the market on the 27th, the stock price fell. Although it rebounded, it fell even more after the opening of the market on the 28th, and the stock price fell as low as US$62.26. On Nov. 2, Chinese concept stocks went up and down. Alibaba opened high and moved low. After the opening bell, the stock price rose to $67.56, but fell to $64.7 at the close.
