Alibaba Group Holding Ltd (BABA US) continues to be the largest worldwide short and makes up over a fifth of total HK\China short exposure. Other perennial large shorts in the region are Ping An Insurance (2318 HK), Tencent Holdings (700 HK) and JD.com (JD US) while relatively newer entries to the top ten are Iqiyi Inc (IQ US) and Meituan Duianping (3690 HK.)
While Alibaba is the largest short in the sector, it is not a profitable one.Â Alibaba shorts were down $5.49 billion in year-to-date mark-to-market losses, -29.4%. This yearâ€™s losses more than offsets the $3.89 billion in 2018 year-to-date mark-to-market profits. In fact, there are only six shorts in the HK\China sector that had over $1 million in mark-to-market profits for the year. Overall, HK\China short sellers were down $8.94 billion in mark-to-market losses for a -27% year-to-date return. Compared to the Hang Seng, which is up 11.5% for the year, and CSI 300, which is up 25.5% for the year, short sellers severely underperformed the HK\China markets.
There were very few HK\China stocks that had a significant increase of shares shorted in 2019, only four stocks had increased short exposure due to additional short selling over $100 million. The largest short mover was the iShares China Large Cap ETF (FXI US) which is used primarily as a hedge for a long HK\China portfolio. There were more securities that had meaningful amount of short covering, with Tencent (700 HK) leading the pack with nearly half a $ billion of short shares covered. The iShares MSCI China ETF (MCHI US) saw almost $200 million of short covering as shorts exited the internet heavy MCHI ETF in favor of the FXI ETF which leans more towards Banking, Insurance and Oil & Gas.
Alibaba short exposure increased by 33% to $20.71 billion in 2019 while overall short exposure to the HK\China sector only increased by 22% to $98.29 billion. Short sellers have increased their concentration to Alibaba in 2019 with 21.2% of all HK\China short exposure in the internet stock, an increase from 19.4% at the end of 2018. Alibaba continues to be the bellwether short in the region, with no other stock in position to challenge its prominence.
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