Short sellers pare back bets against Chinese home builders

Short interest across the shares of China’s largest homebuilders slumps to 12 month low, data provider Markit says

PUBLISHED : Thursday, 17 March, 2016, 10:24am
UPDATED : Thursday, 17 March, 2016, 10:24am

Average short interest across the largest real estate developers listed in Hong Kong and China has fallen by a third from the peak in 2015, as bears retreat from bets of a further decline in the share prices of home builders housing sector.

The average short interest for mainland property developers has dropped to below 0.9 per cent, from the peak at higher than 1.4 per cent last June, according to Markit analyst Relte Stephen Schutte.

Many mainland based property companies are trending higher thanks to the supportive policies unveiled by government to help prop up the housing.

Meanwhile, “some real estate firms are borrowing to fund the acquisition of their own shares, creating an environment that has become untenable for short sellers,” Schutte said in a note Wednesday.

The most shorted developer at the start of the year was China Vanke with 14 per cent of its shares on loan, Schutte said.

The percentage of China Vanke’s shares outstanding on loan or short interest has declined by more than two thirds to 3.3 per cent, making the company the third most shorted property developer, after rival Evergrande Real Estate (6.4 per cent) and Poly Property (3.9 per cent).

Shares in Vanke were suspended in December at the request of the company pending a restructuring and possibly part of efforts to fend off a hostile takeover from insurance conglomerate Baoneng.

Concern for the company’s outlook has been partly eased at it announced this week a plan to acquire a stake in the Shenzhen Metro ) as part of restructuring efforts. The proposal is also seen as helping China Vanke fend off a hostile takeover by Baoneng.

Vanke has welcomed a move by insurer giant Anbang Insurance, who increased their stake in the homebuilder from 4.5 per cent to 7 per cent in December.

Shorts have also been seen giving up positions in the second largest residential developer in China, Evergrande Real Estate Group.

Evergrande’s Hong Kong-listed share hit a low in February, at the time having fallen about 29 per cent since the start of the year, thanks to a downgraded by Moody’s for its aggressive acquisition spree. The share has since recovered, but remain down 7 per cent year to date.

Evergrande purchased a Hong Kong office tower for US$1.61 billion last year. The developer ranks as the most indebted of its kind in China.

Poly Property Group, another developer based in southeast China’s Guangzhou has seen short positions on its shares decline by 40 per cent in the past six months.

The company’s Hong Kong-listed shares have rallied about 20 per cent since early February, following a drubbing last year that erased 40 per cent of the companies market capitalization. Short sellers have lowered their short positions in the company’s stock by 15 per cent since early February, according to Markit.