It is hard to imagine a company's stock plunging 16 per cent in four days on the back of an unconfirmed rumour that a large investment bank might be preparing to publish a 'sell' recommendation.
Yet from last Monday to Thursday this happened to China Yurun Food Group, a Hong Kong-listed mainland meat processor, purely because traders were speculating that short-seller Muddy Waters would soon issue negative research about the company.
Carson Block, the American, 35-year-old non-practising lawyer who is Muddy Waters' only permanent employee, has not confirmed or denied he is preparing research on Yurun. Investors' reactions prove how powerful this sole operator has become.
Block makes a living from posting scathing analyses about Chinese companies on his website and betting their shares will fall. He became infamous on June 2, when he posted research claiming that Sino-Forest, a mainland timber firm listed in Toronto, had faked land holdings in Yunnan province. Sino-Forest, the only non-US-listed company Block has attacked, denies the claim, although its shares have plunged 85 per cent since June 1.
The Muddy Waters founder is hardly Warren Buffett. His work experience before starting out as a short-seller included a short stint at solicitors firm Jones Day and setting up a self-storage company, named Lovebox (its motto is 'get self-storage without BS') in Shanghai.
But investors follow Block because he is one of very few analysts brave enough to air criticisms of publicly listed Chinese companies. On the topics of dodgy accounting and suspected fraud, the well-trained, well-heeled research analysts working at investment banks in Hong Kong usually stay silent.