Carson Block's Mystery Short Target Roils Hong Kong Stocks

  • Muddy Waters founder to unveil name of target on Wednesday
  • Huishan sank 85% after Block said stock worth ‘close to zero’

Block: Number of HK-Listed Companies Are Committing Fraud

Where will Carson Block strike next?

For traders in Hong Kong, it’s a suddenly pressing question. Block, the short-selling founder of Muddy Waters, told Bloomberg News he identified a new target in the former British colony and will reveal the company’s name at the Sohn Hong Kong Conference just after 2 p.m. local time on Wednesday.

Carson Block on June 6.

Photographer: Anthony Kwan/Bloomberg

His comments triggered an immediate flurry of speculation in the city’s $4.6 trillion equity market. The Hang Seng Composite Index dipped as he spoke on television, with stocks including Tongda Group Holdings Ltd., Man Wah Holdings Ltd. and Sunny Optical Technology Group Co. sliding on concern they could be in the short seller’s crosshairs.

“Some of the mid- and small-caps are falling quite a lot as Muddy Waters may have frightened some investors or speculators,” said Sam Chi Yung, a senior strategist at South China Financial Holdings Ltd. in Hong Kong. “They’re afraid that the stock they’re holding will be the next target.”

Calls to Man Wah’s investor relations lines weren’t answered and the furniture maker didn’t immediately reply to emailed requests for comment. An investor relations employee at Sunny Optical said “business is normal and on track.” A spokeswoman for Tongda, a maker of consumer electronics casings, declined to comment on market rumors and said the company isn’t aware of any reason for the share-price movement.

‘Small Panic’

Block’s attempt to build suspense for his latest report drew criticism from Andrew Clarke, director of trading at Mirabaud Asia Ltd. in Hong Kong.

“Saying he will name a short tomorrow afternoon in his speech is rather irresponsible as there must be at least 50 stocks down by 5 percent,” Clarke said. “But he is only naming one, so he has potentially created a small panic selloff in 49.”

While Hong Kong’s stock market is one of the world’s best performers this year, the city has seen a series of spectacular crashes and a pickup in activity among activist short sellers. Shares of China Huishan Dairy Holdings Co. have been frozen since they tumbled 85 percent on March 24, just months after Muddy Waters said the company was worth “close to zero.”

“There are a number of companies listed in Hong Kong that we think are committing fraud, often combined with stock manipulation,” Block told Bloomberg Television’s Rishaad Salamat and Haidi Lun on Tuesday. “We’ll have to find out tomorrow,” he said, when asked for details on his new short.

While he’s keeping quiet on the target’s identity, it’s a fair bet that Block’s firm and his clients have already started building bearish positions in the stock. With that in mind, the tables below show a snapshot of recent short-selling activity in Hong Kong.

The first displays Hong Kong-listed stocks with the largest short interest as a percentage of shares outstanding, according to data compiled by IHS Markit and Bloomberg. The second shows where that ratio has climbed fastest over the past month, in percentage-point terms. Markit’s data is based on shares out on loan, an indicator of short-selling activity.

Tongda Group, which appears in both tables, dropped 10 percent on Tuesday. Man Wah retreated 8.6 percent, while Sunny Optical dropped 1.6 percent.

Biggest Short Interest

Great Wall Motor2333 HK15.1
Aluminum Corp of China2600 HK11.8
Anhui Conch Cement914 HK10.7
BBMG Corp2009 HK9.8
GCL-Poly Energy Holdings3800 HK9.6
Weichai Power2338 HK9.6
United Laboratories3933 HK9.5
BYD1211 HK8.9
PAX Global Technology327 HK7.6
Tongda Group Holdings698 HK6.3

Biggest Short Increases (Change in Percentage Points)

Tibet Water Resources1115 HK4.1
China National Building Material3323 HK2.3
Huadian Fuxin Energy816 HK2.2
Tongda Group Holdings698 HK1.9
O-Net Technologies Group877 HK1.8
Sunac China Holdings1918 HK1.7
China Harmony New Energy Auto3836 HK1.7
AAC Technologies Holdings2018 HK1.6
Zhuzhou CRRC Times Electric3898 HK1.6
Minth Group425 HK1.4

Block discusses what he looks for when shorting a company, his concerns on Snap and his call on China.

(Source: Bloomberg)

— With assistance by Jeanny Yu, and Amanda Wang

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