The shorts are circling around one of this year’s best equity investments in Greater China - Tencent - as well as targeting a handful of smaller Chinese property stocks such as Evergrande that have underperformed.
** Over the past year when short-selling in Tencent (as a percentage of daily turnover) gets to levels seen last week a squeeze has followed. link.reuters.com/fyg83v
** Risk of a global sell-off in tech remains but Tencent offers large, liquid access to a sector that has Beijing’s blessings and is uncorrelated to the broader economy and as such will continue to stay on the radar of longer-term institutional investors.
** In the Chinese real estate market some investors are smelling blood after the bounce back in share that came partly on valuations, and as central government efforts to rein in prices did little to dent demand.
** Among the constituents of the MSCI China smaller Chinese property firms such as Evergrande, Agile and Guangzhou R&F Properties have a better ROE and trade at a lower P/B than the index median. (Median ROE for MSCI China firms is about 20%, while median P/B sits at 1.6 times).
** But analysts warn that new property curbs that come from local governments are likely to be more effective and smaller developers will feel the pinch.
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