Strategy:Short Selling Analysis for September 15

Last Friday the HKSFC released the aggregate short positions data for
September 15. Weanalysed which companies may be vulnerable to
short-selling activity, based on the followingthree criteria: (i) the
net change in short positions between September 8 and September15; (ii)
short positions as a percentage of free float; and (iii) the absolute
amount of shortpositions. We must emphasize this is only an objective
quantitative analysis based onofficial data; the analysis does NOT imply
that we feel uncomfortable with the corporategovernance or fundamentals
of some companies. Based on the results of our analysis,we believe COSCO
Shipping (1919.HK), IGG (0799.HK) and SmarTone (0315.HK)require close
monitoring, based on their latest short positions outstanding. We also
see accumulatingshort positions in Cheming Paper (1812.HK) and YOFC
(6869.HK), probablybecause of their impressive share price performance
YTD. On the other hand, we note thatshort positions in China Harmony
(3836.HK) and Maple Leaf (1317.HK) have dropped significantly.

    Short positions in COSCO Shipping, IGG and SmarTone increased
significantly. AsFigure 1 shows, the short positions in COSCO Shipping,
IGG and SmarTone rose 38.5%,26.8% and 20.9%, respectively, during the
week ended September 15. The outstandingshort positions were equivalent
to 3.7%, 10% and 11.2% of their free float. We believe theincrease in
short positions in COSCO Shipping is largely because of the rally YTD,
with again of 66%. For SmarTone, the increase in short positions is
likely related to the de-ratingprocess in the past few weeks after the
release of disappointing FY17 results. Meanwhile,we have already
highlighted the rising short positions in IGG in the past few weeks. We
alsonote a rise in short positions in other well-performing stocks YTD,
such as Chenming Paperand YOFC, which rose 51.1% and 45.3%,
respectively, during the week ended September15. The outstanding short
positions were equivalent to 2.9% and 2.7% of their free float.

    Significant decline in the short positions in China Harmony and
Maple Leaf. Short positionsin China Harmony and Maple Leaf dropped 30.4%
and 24.4%, respectively, duringthe week ended September 15 (Figure 2).
In China Harmony’s case, we highlighted the decreasein short positions
earlier. The sharp reduction in short positions in Maple Leaf waslikely
driven by a share price rebound of 27% in the past few weeks. We have
seen moresouthbound inflow to this stock; and holdings by southbound
investors increased from5.97% of issued shares in early August to 6.97%
last Friday.

    Review of ideas last week. We highlighted the surge in short
positions in Life Tech(1302.HK) last week, and its share price dropped
8.4%. We also mentioned the decline inshort positions of Dali Foods
(3799.HK) and China Travel (0308.HK) last week, and theirshare prices
rose 6.3% and 5.1%.

    Recap: Source of data. The HKSFC releases the aggregate short
positions in all eligiblestocks every Friday with a delay of one week.
The HKEx releases the data on short-sellingactivity on a daily basis
(without a one-week delay), but investors do not know whether theshort
positions are covered or not later. Therefore, the usefulness of the
HKSFC data is thatit provides the outstanding short positions in each
stock, and investors can trace the netchange on a weekly basis. However,
there are still some limitations, as this data set cannotcover
short-selling activity using OTC derivative products.