Short sellers are more bearish on Hollysys Automation Technologies Ltd. than any other stock in an index of Chinese companies trading in the U.S., following investor and regulatory scrutiny of the group.
The CHART OF THE DAY shows short selling on Beijing-based Hollysys jumped to a high of 16 percent of its outstanding shares on June 13, according to Data Explorers, a New York-based research firm. That compares with 4.5 percent on April 1 and 1 percent at the end of 2010. The shares fell 35 percent in the U.S. this year through June 17.
At least eight China-based companies have had registrations revoked by the U.S. Securities and Exchange Commission since December and more than 24 have disclosed auditor resignations or accounting problems to the agency since March, SEC Chairman Mary Schapiro wrote in an April 27 letter. In a short sale, a trader borrows shares and sells them, profiting if the price drops by buying back the stock at a lower price.
“Investors are concerned about Chinese stocks listed in the U.S. after fraud allegations against some of these companies,” said Will Duff Gordon, a senior research analyst at Data Explorers. “That concern is affecting all stocks in the sector, with Hollysys being among the most targeted,” he said. “Short interest on the stock has gone from almost nothing to a very significant level in a relatively short time.”
Jennifer Zhang, a spokeswoman for Hollysys, didn’t respond to phone calls or e-mail messages sent over the weekend and today during regular business hours in Beijing.
The Bloomberg Chinese Reverse Mergers Index, which tracks 78 companies that gained U.S. listings through the purchase of shell corporations, plunged 48 percent in 2011 through June 17. Sino-Forest, a timber company that trades in Toronto, lost 71 percent in two days after short seller Carson Block of Muddy Waters LLC said it misrepresented its holdings. Sino-Forest, which isn’t in the Bloomberg index, denied the allegations.
The five stocks in the Bloomberg index of Chinese reverse-merger companies with the highest proportion of outstanding shares sold short, according to Data Explorers: 1. Hollysys Automation Technologies Ltd. - 16 percent 2. Harbin Electric Inc. - 15 percent 3. Puda Coal Inc. - 14 percent 4. Advanced Battery Technologies Inc. - 13 percent 5. Telestone Technologies Corp. - 11 percent