Short selling can be a tough business, as those betting on declines in Hong Kong’s equity market are finding out.
Great Wall Motor Co is the scene of the latest smackdown. 
Short interest in China’s biggest SUV maker is near a five-year high, but the shares are in rebound mode, soaring 21% last week to bring the recovery from last month’s nadir to almost 40%.
Traders have been similarly burnt by other targets in the city, with property developer China Evergrande Group earning the title of the world’s most painful short this year. 
AAC Technologies Holdings and Dali Foods Group Co have also rallied despite being the subject of investigations into their accounting by short-selling research firms.
For Great Wall – which hasn’t been accused of anything – the recent gains may be what’s bolstered the shorts, said Kenny Tang, vice-chairman at Jun Yang Financial Holdings.
“The share price went up too sharply in such a short period,” attracting some short sellers, Tang said. In fact, short interest in Great Wall as a percentage of its free float was just above 14% on Thursday after more than doubling this year, making it one of the most shorted stocks in Hong Kong. 
By comparison, Man Wah Holdings, targeted last week by well-known short seller Carson Block, has a short interest ratio of almost 15%.
At the same time as short interest in Great Wall was building, it was attracting interest from the mainland, said Tang. 
The automaker’s Hong Kong-listed shares trade at a discount of about 36% to those in Shanghai and it was among the most-actively traded through the equity link with the mainland on Friday, when the stock gained more than 3%.
Last week’s surge, Great Wall’s biggest one-day climb since 2008, came as Credit Suisse Group AG raised its rating on the shares, boosting the target price by more than 50% amid expectations new models will burnish the company’s earnings prospects. Xu Chengzhi, a spokesman for Great Wall, didn’t respond to a request for comment on the share move.
Great Wall eased back on Tuesday, slipping 2.9% at the close in Hong Kong. But the burning continued elsewhere, with Sunac China Holdings, another short-selling target, jumping 12%. 
Some may be betting the Tianjin-based property developer is “the next Great Wall,” with mainland investors piling in to securities with high short interest, said Toni Ho, an analyst at RHB OSK Securities Hong Kong.
While analysts are relatively mixed on Great Wall, ratings on the company don’t jibe with the spike in shorts. With 17 buy ratings versus 11 sells, it has a consensus grade of 3.34 on a Bloomberg scale in which five is a buy and one is a sell.
For Tang at Jun Yang Financial, the fallout on Great Wall may not be as severe as it looks, with some investors probably having a bet both ways. “Some funds need to chase the shares but may want to hedge the risk and so have a short position,” he said.
But the squeeze may not be over yet. Despite the recent surge, Great Wall’s price-to-earnings ratio is still almost 50% below where it was two years ago.
“If hot money continues to flow into the shares, there may still be substantial room for upside,” Tang said.