(May 6): Traders are swiftly unwinding bearish positions against Contemporary Amperex Technology Co Ltd’s Hong Kong-listed shares as the focus shifts to the battery giant’s growth outlook following a US$5 billion share sale.
Short interest has dropped to 15.4% of free float as of Monday, the lowest since December and compared with about 26% a week earlier, S3 Partners data show. The blockbuster offering last week boosted the availability of shares for shorting, easing borrowing costs, while the number of shorted shares dropped to a five-week low.
Over the past year, an unusually high premium on the Hong Kong shares attracted growing short interest — despite the lack of direct arbitrage — as traders built simultaneous bullish positions in the cheaper Shenzhen shares. The gap drove a buildup in short positions as the stock more than doubled since its Hong Kong debut last year.
While the spread has been notoriously hard to predict, the jumbo offering — alongside a recent sale by a large shareholder — allowed investors to cut losses or exit the trade.
The recent share placements have provided funds a window to cover their short position at a discount, said Eugene Hsiao, a strategist at Macquarie Capital Ltd.
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“Investor sentiment on CATL remains broadly positive with growing expectations of further growth for the battery energy storage business and moves further downstream into system integration.” Hsiao said. “Appetite to remain short is likely lower, given a solid fundamental backdrop.”
CATL’s Hong Kong shares rose as much as 4% Wednesday while its Shenzhen-listed stock climbed more than 6% to an intraday high as China’s markets reopened after a holiday. Morgan Stanley upgraded the stock to overweight this week, citing the rapid scaling potential for its next-generation sodium-ion and condensed battery technologies. Of 25 analysts tracking the Hong Kong stock, 23 have a buy or equivalent rating and two have holds, with no sell ratings, Bloomberg-compiled data shows.
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