Benzinga | Sep 18, 2020 05:00PM EDT

Short Sellers Piling Into Chinese Stocks As Trade Tensions Rise

Trade tensions between China and the U.S. are once again on the rise over President Donald Trump's threats to ban TikTok and WeChat in the U.S. starting on Sunday. With the November election now only about six weeks away, S3 Partners analyst Ihor Dusaniwsky said short sellers are targeting Chinese stocks in a major way.

Dusaniwsky said China and Hong Kong short interest now totals $104 billion, an increase of $2.03 billion in the past month. The dispute between Trump and China over TikTok could be a preview of what's to come between now and the election, and short sellers seem to believe Chinese stocks could suffer.

Most Shorted China Stocks: Here are the five U.S.-listed Chinese stocks with the largest outstanding short positions, according to S3:

* Alibaba Group Holding Ltd - ADR (NYSE:BABA), $11.72 billion in short interest.

* JD.Com Inc (NASDAQ:JD), $3.24 billion in short interest.

* Pinduoduo Inc - ADR (NASDAQ:PDD), $2.95 billion in short interest.

* GSX Techedu Inc (NYSE:GSX), $2.38 billion in short interest.

* Nio Inc - ADR (NYSE:NIO), $1.47 billion in short interest.

Short sellers have been particularly aggressive in betting against Alibaba and JD.com in the past 30 days. Alibaba's short interest has increased by $1.48 billion in that time, while JD.com's short interest is up by $320.7 million. Nio's short interest is headed in the other direction, dropping by $642.5 million in the past month.

Dusaniwsky said Chinese stock short sellers have had some home run trades in 2020 led by Luckin Coffee Inc - ADR (OTC:LKNCY), which has netted short sellers a $1.15 billion profit this year. However, short sellers have taken year-to-date losses of $2.51 billion on Alibaba, $2.45 billion on GSX Techedu and $1.77 billion on Nio.

"HK-China short sellers are down -$15.98 billion in mark-to-market losses for the year but are up +$935 million in September mark-to-market profits as the Hang Seng retreated -1.79%," Dusaniwsky said.

Benzinga's Take: According to PredictIt, Joe Biden now has a 59% chance of defeating Trump in November. Given Trump has been extremely tough on China throughout his first term, any momentum Biden has leading into the election would presumably be bad news for Chinese stock short sellers.

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