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 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 BABA has by far the largest short interest of any U.S.-listed China stock at $10.34 billion. Pinduoduo Inc - ADR PDD is a distant second at $3.86 billion followed by GSX Techedu Inc 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 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 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 BILI is second at $63.4 million in short covering followed by DBX ETF TR/X-TRACKERS HARVEST 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 feedback@benzinga.com with your thoughts.

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