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What’s bad news for investors in U.S.-listed China-based stocks is good news for short sellers, who made back almost everything lost this year after the Senate approved the Holding Foreign Companies Accountable Act.
The bill could end up barring many China-based companies from listing on U.S. exchanges, as it requires companies to show that they are not owned or controlled by a foreign government and to allow for audits to be reviewed by the Public Company Accounting Oversight Board.
Read more: Senate passes bill that could delist Chinese companies from U.S. stock exchanges.
Sen. John Kennedy, a Louisiana Republican who submitted the bill for consent, said this week the bill aimed to stop the Chinese Communist Party from “cheating” on U.S. stock exchanges.
Some China-based companies may choose to abandon U.S. exchanges voluntarily given the increased regulatory scrutiny. Shares of Baidu Inc. BIDU, +1.18% have shed 10% this year, and the internet company said it was considering listing elsewhere because the regulations have led to the company being undervalued, according to a Reuters report.
Many of the stocks of China-based companies have been pressured by news of more U.S. scrutiny, especially following the financial improprieties that led to a plunge in the shares of Luckin Coffee Inc. LK, -25.21% following a long trading halt. S3 Partners LLC estimates that those who placed bearish bets, or shorts, on the stocks enjoyed a combined roughly $382 million in mark-to-market gains on Wednesday.
Don’t miss: Short sellers are not evil, but they are misunderstood.
Short sellers had been suffering a combined $483 million of losses through Tuesday, even as those who were short Luckin’s stock had booked about $1.08 billion in mark-to-market profits.
That’s because many of the China-based companies with stocks trading in the U.S. are internet companies that have outperformed amid the COVID-19 pandemic, just as Amazon.com Inc.’s stock has rallied in the broader market selloff.
The iShares MSCI China exchange-traded fund MCHI, -2.44% has gained 7.6% year to date, as the KraneShares CSI China Internet ETF KWEB, -2.17% has shot up 21%, while the Shanghai SE Composite Index SHCOMP, -0.54% has slipped 1.3% and the S&P 500 index SPX, -0.51% has dropped 8.7%.
Shorts may be back in the black on Thursday, as the iShares MSCI ETF dropped 2.8% and the KranShares ETF slumped 2.9%.
In all, S3 said it follows 556 U.S.-listed stocks of China-based companies, which have an aggregated market capitalization of $5.5 trillion. The combined short interest in those stocks is about $22.7 billion.
The following are the 10-most shorted of those stocks, in terms of short-interest value:
| Company | U.S. stock ticker | Short interest (millions) | Short interest as % of float |
| Alibaba Group Holding Ltd. | BABA | $6,405.1 | 1.11% |
| Pinduoduo Inc. | PDD | $2.294.3 | 5.51% |
| JD.com Inc. | JD | $1,802.8 | 2.73% |
| GDS Holdings Ltd. | GDS | $879.9 | 9.75% |
| GSX Techedu Inc. | GSX | $784.5 | 17.99% |
| Tencent Holdings Ltd. | TCEHY | $629.0 | 0.12% |
| Baidu Inc. | BIDU | $557.3 | 1.85% |
| Yum China Holdings Inc. | YUMC | $529.6 | 3.09% |
| Bilibili Inc. | BILI | $516.6 | 6.28% |
| IQIYI Inc. | IQ | $516.3 | 9.06% |
| S3 Partners LLC | |||
