Strategy:China Galaxy International-Strategy??Short Selling Analysis for August 24

Last Friday, the HKSFC released the aggregate short positions data for August 24. We analyzedwhich companies may be vulnerable to short-selling activity, based on the followingthree criteria: (i) the net change in short positions between August 17and August 24; (ii)short positions as a percentage of free float; and (iii) the absolute amount of short positions.We must emphasize this is only an objective quantitative analysis based on officialdata; the analysis does NOT imply that we feel uncomfortable with the corporate governanceor fundamentals of some companies. According to the results of our analysis,we believe Hua Hong Semiconductor (1347.HK) requires close monitoring, basedon the latest short positions outstanding. On the other hand, we note a sizable declinein short positions in China Aoyuan (3883.HK).

    Hua Hong Semiconductor: As Figure 2shows, short positions in Hua Hong Semiconductorrose 22.9% during the week ended August 24. The outstanding short positions wereequivalent to 3.22% of its free float. The 5-day moving average short-selling amount duringthe week ended August 31was HK$22.2m, surging from HK$10.57m during the week endedAugust 24.

    China Aoyuan: As Figure 3show, short positions in Ao yuan fell 26.8% during theweek ended August 24. The outstanding short positions were equivalent to 3.68% of its freefloat. The 5-day moving average short-selling amount during the week ended August 31wasHK$0.53m, dropping from HK$3.2m during the week ended August 24.

    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 shortsellingactivity on a daily basis (without a one-week delay), but investors do not know whetherthe short positions are covered or not later. Therefore, the usefulness of the HKSFC datais that it provides the outstanding short positions in each stock, and investors can trace thenet change on a weekly basis. However, there are still some limitations, as this data setcannot cover short-selling activity using OTC derivative products.

    Three angles to analyzing the data. (i) The net change in short positions between August17and August 24; (ii) short positions as a percentage of free float; and (iii) the absoluteamount of the short positions.