WSJ Blog: Shorting U.S.-listed Chinese companies is so yesterday. That’s the opinion of some hedge fund managers who’ve made money and are struggling to place fresh bets.
Chinese firms listed in the U.S. have made headlines in recent months amid allegations of fraud and a clampdown by regulators. By the Securities and Exchange Commission’s account, more than two dozen Chinese firms listed in the U.S. in March and April alone announced auditor resignations or other major accounting travails.
Hedge funds have been circling Chinese stocks they want to bet against and focusing on those which listed through a backdoor process known as a “reverse merger” or “reverse takeover” that requires them to disclose less information to investors than a traditional initial public offering.
“As soon as the story hits the front pages of the financial newspapers then a lot more people start piling in,” said Sahm Adrangi at Kerrisdale Capital Management LLC. “Every trade comes to an end.”
According to a letter to Kerrisdale investors, the New York based investment firm gained 73% in the first quarter, net of fees, one of the best-performing hedge funds globally. Short bets on Chinese companies were a big reason for its success.