Investor sentiment in Hong Kong at two and half year low – driven by Real Estate shorts

Investor sentiment in Hong Kong turned bearish far before the rest of the world caught up, with overall sentiment now at a two and a half year low. Following news of fresh scandals afflicting Chinese stocks listed overseas we look at investor sentiment across the Hong Kong market and individual stocks including Choada Modern Agriculture Holdings Ltd. (HKG:0682), Poly (Hong Kong) Investments Ltd. (HKG:0119), China Resources Land Ltd. (HKG:1109), China Overseas land and Investment Ltd. (HKG:0688), Hopson Development Holdings Ltd. (HKG:0754) and KWG Property Holding Ltd. (HKG:1813).

Last week, the Hong Kong equities Long Short Ratio reached a new two-and-a-half year low of 5.4. This means that longs outnumber shorts by just over five times, and this figure stands at less than half the annual high reached in January. This fall has been driven by a combination of an increased value of stock on loan and decreasing institutional ownership. Both saw a new annual high and low last week, respectively.

Although average short interest across HK listed stocks with a market cap’ of more than USD 1 billion stands at only 1% of total shares, this has increased by almost 100% over the past month alone. This low percentage of stock on loan is not driven by muted demand to borrow the shares, but rather by very limited lendable supply, with average institutional ownership also low at 5% of total shares (a topic for discussion at the Data Explorers Hong Kong Forum on 16 November - click here for more information).

In line with the recent high profile scandals of Chinese stocks listed overseas, including Sino-Forest Corp (TSE:TRE), Choada Modern Agriculture Holdings Ltd. (HKG:0682) hit the headlines last weeks amid accusations of insider trading. It remains the most shorted stock in Hong Kong and trading has now been suspended. Short interest has almost doubled since its surge in April to an unprecedented high of 22.6% of total shares. This represents almost three quarters of the lendable supply. Meanwhile, institutional investment of funds who lend has remained flat, decreasing by only 5% to 30% of the market cap’ over the third quarter.

Of the 300 stocks screened, a fifth of these see short interest at above average levels. Drilling further into this group a quarter of these are Real Estate stocks, despite the sector recording short interest at an average of 0.9% of total shares, up 58% on the month. Stocks seeing the greatest short interest include Poly (Hong Kong) Investments Ltd. (HKG:0119) at 7.9%, China Resources Land Ltd. (HKG:1109) at 6.3%, China Overseas land and Investment Ltd. (HKG:0688) at 6.0%, Hopson Development Holdings Ltd. (HKG:0754) at 3.3% and KWG Property Holding Ltd. (HKG:1813) at 3.1%. This is not surprising given the ongoing concerns in the booming sector as the government continues to curb lending to developers and traders begin to digest evidence of falling prices in the sector.

Poly (Hong Kong) Investments Ltd., the most shorted real estate stock is also the sixth most shorted stock in Hong Stock with 8% of total shares out on loan, as the share price falls to new lows. Institutional investment of funds who lend has also declined by a third since reaching annual highs in April, and now represents less than a tenth of the company.

Top 20 most short Hong Kong stocks