Date
15 December 2017
Tech Pro’s plunge triggered a selloff in small caps as investors worried about their financials. Photo: HKEJ
Tech Pro’s plunge triggered a selloff in small caps as investors worried about their financials. Photo: HKEJ

Why short sellers deserve their prize

Tech Pro Technology (03823.HK) came under attack from shorter seller Glaucus after the listed company was accused of overpaying for poor-quality acquisitions and manipulating M&A profits.

Glaucus gave a price target of zero for Tech Pro.

The negative review hammered the stock to 14 Hong Kong cents at the close Friday from as high as HK$2.27 (29 US cents).

(Editor’s note: Tech Pro had rebounded to 27 Hong Kong cents at this writing.)

The Tech Pro saga reminded investors about the importance of checking the financials (such as cash flow) of an investment target rather than relying on technical analysis of price movements.

Still, if a company purposely sets out to cheat investors, analysis has very little use.

Antony Bolton’s terrible experience with some fraudulent mainland firms is a good example.

Shady companies have given rise to short sellers including Glaucus, Muddy Waters, Citron etc.

In most cases, their targets typically get clobbered.

Short selling may sound easy but there’s a lot of hard and dirty work involved in picking off dodgy stocks.

Short sellers also need to master accounting techniques and have the financial knowhow to detect abnormal corporate developments. 

The full article appeared in the Hong Kong Economic Journal in Chinese on Aug. 1

Translation by Raymond Tsoi

[Chinese version 中文版]

– Contact us at [email protected]

RA

Columnist at the Hong Kong Economic Journal

EJI Weekly Newsletter

Please click here to unsubscribe