‘The mother of all shorts’ an extremely risky trade
“It’s so enormously volatile that it’s really dangerous.”
Soren Aandahl
HONG KONG: By any conventional measure, AMTD Digital Inc is one of the world’s most overvalued stocks.
The barely profitable Hong Kong financial services firm trades at more than 400 times its latest fiscal-year profit, compared with about six times for Goldman Sachs Group Inc, according to Bloomberg-compiled data.
Even after tumbling more than 90% from its peak in early August, AMTD Digital’s 2,221% gain since listing in New York five weeks ago rivals Gamestop Corp’s surge at the peak of meme-stock mania.
One analyst has called AMTD Digital – whose leader is appealing a ban from Hong Kong’s securities industry – “the mother of all shorts.”
Yet ask professional short sellers about the stock, and they’re more likely to say it’s an incredibly risky stock to bet against.
AMTD’S tiny free float and low turnover makes borrowing shares prohibitively expensive for short sellers, while its extreme volatility could wipe out bearish positions in an instant.
“As a professional short seller, you want to stay a mile away from this,” Soren Aandahl, whose Blue Orca Capital is best known for betting against companies based in China and Hong Kong, said in an interview.
“It’s so enormously volatile that it’s really dangerous.”
That reticence helps explain why AMTD Digital – little-known even within Hong Kong financial circles until its eye-popping gain – is still valued at more than Us$30bil (Rm134bil), making it bigger than about half of the companies in the S&P 500 Index.
With stocks like Gamestop and Bed Bath & Beyond Inc climbing once again, AMTD Digital offers a stark reminder that seemingly irrational gains can last far longer than seems warranted.
That’s partly because shorting the stocks is so risky, a lesson that hedge funds including Melvin Capital Management learned the hard way with money-losing bets against stocks including Gamestop.
AMTD Digital has been raising eyebrows across Wall Street after a mysterious rally that exceeded 32,000% at its peak.
At one point the company was worth about Us$400bil (RM1.79 trillion) on paper, more than the likes of Goldman Sachs Group Inc and Jpmorgan Chase & Co.
Other newcomers from Hong Kong or mainland China have also posted similarly inexplicable gains, catching the attention of US regulators.
AMTD Digital hasn’t returned multiple requests for comment.
It said in an Aug 2 statement titled “Thank you note to investors” that it’s monitoring the market for any trading abnormalities and doesn’t know of any “material circumstances, events, nor other matters” that could be affecting the stock price.
Market observers interviewed by Bloomberg have been baffled by the move.
Tellimer Ltd became the first and sole brokerage to initiate coverage of the company, according to data compiled by Bloomberg, assigning it a sell rating on Monday in a report titled “AMTD Digital: The mother of all shorts.”