HK Hedge Fund Thanks Short Sellers, Bets Against Them

06-Jul-2017 Intellasia | Bloomberg | 6:00 AM Print This Post

Jim Fong, portfolio manager at hedge fund Quam Asset Management Ltd, has something to say to the short sellers who have become increasingly active in Hong Kong’s markets: Thank you.

“When a short seller comes out with a report, actually, I should thank them,” Fong, who manages a Greater China-focused long-short equity fund for Hong Kong-based Quam Group, said in an interview at the firm’s office. When the targeted companies respond with their own statements, “it helps us clarify more whether the company is good or not,” Fong said. “Then, swift action is very important.”

Fong has taken the opposite side of the bet from short sellers twice recently, buying shares of Shenzhen-based Apple Inc. supplier AAC Technologies Holdings Inc., which tumbled after allegations from Gotham City Research, and of furniture maker Man Wah Holdings Ltd, which sank after Muddy Waters LLC’s Carson Block announced he was shorting the stock.

In both cases, Fong took advantage of sell-offs following the short sellers’ reports to add to positions before trading was halted. Quam initially invested in both companies in 2016, according to Quam’s Kate Lam.

Hong Kong Shorts

Short-selling activity has picked up in Hong Kong, drawing recent regulatory scrutiny. Bearish research firms tracked by Activist Insight have targeted at least 20 companies in the former British colony over the past 12 months, the most since at least 2012.

“Our approach is to do our own research when each report comes out,” Fong said. “We track the companies they attack and check across all the Hong Kong listing rules. We also track their margins with peers. We investigate the chairmen.”

In the case of AAC, shares have risen about 17 percent since they resumed trading June 7 and the company has rejected Gotham’s claims, announced a buyback and unveiled a new 10 billion yuan ($1.5 billion) line of credit. The stock is still down about 13 percent since Gotham first questioned the company’s accounting and transactions with related parties on May 11. Sofa-maker Man Wah, which has blasted Block’s allegations, is trading back around where it was before his salvo.

Fong doesn’t always bet against the short sellers. After e-commerce firm Cogobuy Group was targeted by an anonymous research group in May, Fong sold his holding in the company. Shares have since tumbled more than 50 percent since trading resumed May 31.

Hong Kong short sellers have seen a success rate as high as 81 percent since 2011, according to data compiled by Malaysian bank CIMB Group Holdings Bhd. Success is defined as a notable drop in the share price or either a de-listing or a long-time suspension of the stock.

The Quam China Focus Segregated Portfolio, a long-short equity fund that invests in Greater China growth and income stocks and event-driven opportunities, has returned an estimated 23 percent through June, according to Kate Lam in investor relations at Quam.

The strategy, set up in June 2005, has returned about 14.5 percent each year since inception.


Category: Hong Kong

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