Why Short Sellers Hit the Exits on These 2 China-Exposed Stocks

Short interest has been plummeting on Weibo Corp (ADR) (NASDAQ:WB) and YY Inc (ADR) (NASDAQ:YY)

Jan 7, 2016 at 11:54 AM
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The Chinese stock market has been a mess, as another trading halt has sparked fear in traders around the globe. Adding to the chaos, Chinese regulators are now suspending the new circuit-breaker system that's already been utilized twice this week.

As stocks with exposure to China absorb especially heavy losses today, it's interesting to point out that, as of the last reporting period, short interest declined on several mainland-based stocks. Let's take a look at two of these notable names: social media firms Weibo Corp (ADR) (NASDAQ:WB) and YY Inc (ADR) (NASDAQ:YY)

WB is down 5.5% today at $17.89, poised to close below its 50-day moving average for the first time since early October. The shares have actually performed well in recent months, having rallied nearly 104% from their late-August low south of the $9 level. 

Amid the stock's run up the charts, short interest has been on the decline, steadily dropping since August. In fact, during the two most recent reporting periods, short interest declined by over 31%. It would still take almost four days for bears to repurchase their bets, though, at the stock's average daily volume. 

It's also interesting to note that both analysts covering Weibo Corp (ADR) say it's a "strong buy." What's more, call buying has had the advantage over put buying at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), with the stock's 10-day call/put volume ratio coming in at 1.47. 

Elsewhere, YY is down 1.9% today at $60.94. The stock is testing support at its own rising 50-day moving average, which hasn't been breached on a daily closing basis since Oct. 14.

With the stock up a healthy 19.4% from its own Aug. 24 low, short sellers apparently want no part of the shares. Short interest fell 29.4% over the last two reporting periods to account for just 3.3% of YY's float. 

However, short-term option traders remain just as put-skewed as ever. In fact, YY's Schaeffer's put/call open interest ratio (SOIR) stands at an annual high of 2.18, meaning put open interest more than doubles call open interest among options set to expire within three months. 

Like WB, analysts are all-in on YY Inc (ADR). All four covering brokerage firms say the stock is a "strong buy."


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