Highly recommend watching the China Hustle on Netflix. A documentory about how small time companies in China are being packaged up and listed on the US stock market through fraud and deceptive accounting practices.
Still appears to be happening today. A real eye opener, and its worrying how easy it appears to be. They are essentially tiny businesses hiding behind shell companies, with inflated revenue to crazy numbers.
As a result, there has been a rise of activisit boutique US hedge funds who visit these companies in China (who are listed on the NASDAQ, NYSE etc and trading millions) and ‘debunk’ them with detailed reports showing the reality of these businesses.
Once the report is published, the share prices generally plummet. There are a few examples in the documentory, but I’ve also looked up the hedge funds mentioned, which are firms such as:
… All of the above actually publish a lot of the reports for free, and it’s interesting the read through the PDFs to see their analysis and target prices for the ‘questionable’ companies.
From a portfolio perspective, I thought these companies could form part of a small allocation – e.g. under 5%, in the same bucket as crypto in an otherwise well balanced portfolio.
Maybe these are short positions worth holding?
I pulled all the shorts the above hedge funds have made public, and from what I could see from the Twitter feeds in 2019/late 2018. I know, it’s a very crude analysis but the fundamentals make a lot of sense if you’ve watched the documentary and read the PDFs in detail.
From what is public these companies are either in the trash, or heading towards it - and the recent correction could accelerate that process. The challenge I see is taking out the positions fast enough after the hedge funds publish new reports - most tank 30-60% very quickly!
I’ve signed up for the email alerts on the sites above, it’ll be interesting to see how quickly they communicate new short positions and if I can catch some in the future.
Here’s the current list I’ve added to my FT portfolio to track over the coming months, maybe I work up the guts to take out some real positions:
|Name|Symbol|Last Price|Last Price_Currency|
|Ausnutria Dairy Corp Ltd|1717:HKG|12.58|HKD|
|Burford Capital Ltd|BUR:LSE|538.5|GBX|
|China Medical System Holdings Ltd|867:HKG|9.6|HKD|
|Corcept Therapeutics Inc|CORT:NAQ|12.62|USD|
|GTT Communications Inc|GTT:NYQ|15.14|USD|
|Kasen International Holdings Ltd|496:HKG|1.46|HKD|
|Luckin Coffee Inc|LK:NSQ|39.56|USD|
|NOVA Group Holdings Ltd|1360:HKG|1.51|HKD|
|Smart Global Holdings Inc|SGH:NSQ|26.84|USD|
|Solutions 30 SE|ALS30:PAR|10.03|EUR|
What do you think about adding these shorts to a portfolio?
Mark this post - I’ll pull the prices again in 3mths time