I am convinced China MediaExpress Holdings (CCME) plays a minor role within this debate, although the fact that the company is a major victim of short selling. Short selling in itself is not illegal and widely used by traders to make money when they think that a share price is likely to fall. However, it is illegal when a trader deliberately tries to force the share price to go down by spreading rumours and false facts about the company. These trades are known as "trash and cash".
Many US-listed China companies had to face systematic attacks by short-sellers. In most cases discrepancies between SAIC filings and SEC filings were the trigger for decreasing stock prices. In respect to China MediaExpress the misunderstanding about buses and contracts was a hot topic. The report of Muddy Waters is accusing China MediaExpress to inflate their numbers.
Would it be a major corporate scandal if not all the information is as clear as should be. Would be the value of the company at stake? If there were some minor differences I don't think the estimated value would be $5.28 as Muddy Waters calculated.
Most companies, that are under attack by short sellers choose to ignore them out of a concern for dignifying them or publicizing them. The fact that China MediaExpress on Monday announced a detailed letter available to their shareholders on its investor website is a positive sign. The letter is available at the “Investor Relations” section of CCME’s website, www.ccme.tv/eng/ir/irprofile.php
Transparency is a two way street, so I would certainly appreciate a full inquiry by the SEC and the NASDAQ concerning the misinformation used by Muddy Waters and others to manipulate the market.
The deliberate circulating of negative rumors and shady facts by amateur hedge fund managers; aiming to push prices down because they were short selling stocks is having a major impact on the US-listed China market's integrity. A lot of reports that have recently been published have a very short time frame, which gives you a uncomfortable feeling. Because you are really going to think: Is shorting China really part of a bigger plan?
The fact that "long-only" managers are not trading CCME. Who the hell was selling like crazy last week?
Long only managers have increased their positions in the company. http://www.nasdaq.com/asp/holdings.asp?symbol=CCME&selected=CCME&FormType=Institutional
Many traditional long-only managers design their portfolios to perform over the next six to twelve months. Hedge funds attack the resulting inefficiency from both sides. They do not care whether a stock is going to do well in one year or not. They want to perform well today or this week or, at worst, this month. These funds usually hold positions for a short period of time.
A lot of them are "black box" funds, where computer programs tell them what to buy. Other are news driven and want to know whether the next piece of news, or "data"point," will be positive or negative. Some of these short-term-oriented funds rely on technical analyses, the study of security trading patterns, to decipher the likely near-term future direction, while others rely on the manager's trading instinct, feel and experience.
Many of the "black box" funds use a combination of insights, and some have been quite successful. These type of funds, tend to have little to none transparency. Nobody on the outside really knows much about the portfolio.
These “black box” funds could also have been playing a part of the giant move in China MediaExpress Holdings last week.
In case of China MediaExpress Holdings (CCME) fact-based articles like the one of Michael Anderson are more reliable, than the accusative articles without merits.
Independent analysts of Global Hunter and Northland who did an amount of due diligence and groundwork in China are whipped out and not taking serious anymore; despite the fact that they have more knowledge and insight in the company than any of us.
Last December the Wall Street Journal mentioned that the SEC (Securities and Exchange Commission) was going after Chinese RTO firms. Taking into account the negative reports published lately, you could start to think some kind of cold war is going on between the U.S. and US-listed China companies, Having their own strong believes about how to run a business, and meeting at the battlefield of the stock exchanges.
Although no weapons are involved, the amount of money makes it worth to fight for. So the fight between longs and shorts will continue. After all: "It's not the short selling that's the problem, it's the damage to the integrity of Chinese companies”.
Where are the regulators? Where is the Securities and Exchange Commission (SEC)?
POSITION: LONG
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Salient points and I agree completely. Should regulators fail to address these type of "skater shot" attacks, many good young Chinese companies will choose not to list in the US markets. That would be a shame and the true long term cost.
ReplyDeleteGreat!
ReplyDeleteI recommended this article!
Great article. The problem from my point of view with this cold war waged by short is that the losers are not the Chinese, it's the American Value Investors. I don't have a problem with legal shorting of company due to questionable fundmentals, what i do have a problem with is well organized high value shorting hiding behind poorly written research notes by off shore researchers utilizing lies and forged documents. I'm being robbed here along with many other honest investor. The SEC and all the Honest independent media need to launch an investigation on this, there is not time to waste.
ReplyDeleteI submitted this article several times at Seeking Alpha PREMIUM but they didn't want to publish it, so you can read it also in my Instablog at Seeking Alpha.
ReplyDeleteThe fact is that Chinese stocks are attacked by high frequency traders.