(Bloomberg) -- Where will Carson Block strike next?
For traders in Hong Kong, it's a suddenly pressing question. Block, the short-selling founder of Muddy Waters, told Bloomberg News he identified a new target in the former British colony and will reveal the company's name at the Sohn Hong Kong Conference just after 2 p.m. local time on Wednesday.
Carson Block on June 6.
His comments triggered an immediate flurry of speculation in the city's $4.6 trillion equity market. The Hang Seng Composite Index dipped as he spoke on television, with stocks including Tongda Group Holdings Ltd., Man Wah Holdings Ltd. and Sunny Optical Technology Group Co. sliding on concern they could be in the short seller's crosshairs.
“Some of the mid- and small-caps are falling quite a lot as Muddy Waters may have frightened some investors or speculators,” said Sam Chi Yung, a senior strategist at South China Financial Holdings Ltd. in Hong Kong. “They're afraid that the stock they're holding will be the next target.”
Calls to Man Wah's investor relations lines weren't answered and the furniture maker didn't immediately reply to emailed requests for comment. An investor relations employee at Sunny Optical said “business is normal and on track.” A spokeswoman for Tongda, a maker of consumer electronics casings, declined to comment on market rumors and said the company isn't aware of any reason for the share-price movement.
‘Small Panic'
Block's attempt to build suspense for his latest report drew criticism from Andrew Clarke, director of trading at Mirabaud Asia Ltd. in Hong Kong.
“Saying he will name a short tomorrow afternoon in his speech is rather irresponsible as there must be at least 50 stocks down by 5 percent,” Clarke said. “But he is only naming one, so he has potentially created a small panic selloff in 49.”
While Hong Kong's stock market is one of the world's best performers this year, the city has seen a series of spectacular crashes and a pickup in activity among activist short sellers. Shares of China Huishan Dairy Holdings Co. have been frozen since they tumbled 85 percent on March 24, just months after Muddy Waters said the company was worth “close to zero.”
“There are a number of companies listed in Hong Kong that we think are committing fraud, often combined with stock manipulation,” Block told Bloomberg Television's Rishaad Salamat and Haidi Lun on Tuesday. “We'll have to find out tomorrow,” he said, when asked for details on his new short.
While he's keeping quiet on the target's identity, it's a fair bet that Block's firm and his clients have already started building bearish positions in the stock. With that in mind, the tables below show a snapshot of recent short-selling activity in Hong Kong.
The first displays Hong Kong-listed stocks with the largest short interest as a percentage of shares outstanding, according to data compiled by IHS Markit and Bloomberg. The second shows where that ratio has climbed fastest over the past month, in percentage-point terms. Markit's data is based on shares out on loan, an indicator of short-selling activity.
Tongda Group, which appears in both tables, dropped 10 percent on Tuesday. Man Wah retreated 8.6 percent, while Sunny Optical dropped 1.6 percent.
Biggest Short Interest
| Great Wall Motor | 2333 HK | 15.1 |
| Aluminum Corp of China | 2600 HK | 11.8 |
| Anhui Conch Cement | 914 HK | 10.7 |
| BBMG Corp | 2009 HK | 9.8 |
| GCL-Poly Energy Holdings | 3800 HK | 9.6 |
| Weichai Power | 2338 HK | 9.6 |
| United Laboratories | 3933 HK | 9.5 |
| BYD | 1211 HK | 8.9 |
| PAX Global Technology | 327 HK | 7.6 |
| Tongda Group Holdings | 698 HK | 6.3 |
Biggest Short Increases (Change in Percentage Points)
| Tibet Water Resources | 1115 HK | 4.1 |
| China National Building Material | 3323 HK | 2.3 |
| Huadian Fuxin Energy | 816 HK | 2.2 |
| Tongda Group Holdings | 698 HK | 1.9 |
| O-Net Technologies Group | 877 HK | 1.8 |
| Sunac China Holdings | 1918 HK | 1.7 |
| China Harmony New Energy Auto | 3836 HK | 1.7 |
| AAC Technologies Holdings | 2018 HK | 1.6 |
| Zhuzhou CRRC Times Electric | 3898 HK | 1.6 |
| Minth Group | 425 HK | 1.4 |
--With assistance from Jeanny Yu and Amanda Wang
To contact the reporters on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net, Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.
To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Michael Patterson
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