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Short selling on the rise in Hong Kong

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With China having just announced the highest inflation levels in 34months and fervent speculation that further monetary tightening will be needed, short selling

With China having just announced the highest inflation levels in 34months and fervent speculation that further monetary tightening will be needed, short selling activity in Hong Kong has climbed to its highest level since September 2010 reported Bloomberg this week. Based on available stock for lending, borrowed shares stand at 12.2 per cent according to a report released by New York research firm Data Explorers, up from 8.8 per cent in January. In addition to mounting concerns over China economic growth, Chinese firms listed in Hong Kong and North America are becoming a target for short sellers due to allegations of light touch corporate governance and fraud.

Will Duff Gordon, a senior research analyst at Data Explorers wrote that the Hong Kong equities market had become “progressively more short”, adding that the increase had been driven by “a sell-off of holdings by institutional investors coupled with strong demand to borrow equities”. Sino-Forest Corp, a tree plantations operator with offices in Hong Kong and Ontario, Canada, has seen its stock price cliff dive 75 per cent since the start of the month following a June 2 report by Muddy Waters Research that its production figures are potentially inaccurate. The number one target for short selling (19 per cent of shares borrowed) on Hong Kong’s Hang Seng Index is Chaoda Modern Agriculture (Holdings) Ltd said Data Explorers. The firm’s share price is down 46 per cent this year.

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