Investors’ growing expectation for a decline in Vipshop Holdings Ltd., a Chinese online fashion retailer, is causing the biggest deficit of shares available to short in four weeks.
About 82 percent of Vipshop’s securities available for borrowing were sold short as of last week, the highest since July 22, according to Markit, a London-based research firm. The ratio slipped to 78 percent on Aug. 19, the latest data available from Markit. The average ratio for Chinese stocks traded in the U.S. is 40 percent, compared with 7 percent for companies on the Standard & Poor’s 500 Index.
In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price. The lack of supply forces prices upward and traders with short positions are forced to buy the securities to limit their losses. The resulting surge of buying leads to even higher prices.
“Pretty much everything that can be borrowed is being sold short, showing you a very big demand to short this name,” Simon Colvin, an analyst at Markit, said by phone yesterday.
American depositary receipts of Guangzhou-based Vipshop sank 4.4 percent to $39.56 at the close in New York, falling for a second day. The company has rallied 124 percent this year.
Short seller Citron Research wrote in a Twitter post Aug. 13 that Vipshop’s shares may slump more than 50 percent, citing data that showed users fell 20 percent in June from a month earlier. Andrew Left, the founder of Citron, confirmed the post by phone that day, adding that he started a short position on Vipshop.
Jeremy Peruski at ICR Inc., Vipshop’s external investor relations manager, couldn’t be reached by phone or e-mail when contacted for a comment after business hours in Beijing.