Kyle Bass is a professional fund manager who has dedicated his life to studying the art of picking winning stock picks. As the founder of the fund management company Kepos Capital, Bass has developed an investment strategy that has given impressive returns in the past and is currently devising more effective investment methods for the future.
As the founder of Kepos Capital, Kyle Bass has dedicated his life to studying the art of picking winning stock picks. As the founder of the fund management company Kepos Capital, Bass has developed an investment strategy that has given impressive returns in the past and is currently devising more effective investment methods for the future.
While some might see this type of dedication to a single investment strategy as a weakness, Bass actually sees it as a strength. In fact, he firmly believes that all strong companies can be neatly categorized into one of four distinct groups:
1. Those who are currently growing (i.e., expanding) their operations.
2. Those who are currently in poor health.
3. Those whose market valuations seem questionable to the untrained eye.
4. Those who are currently expanding (i.e., growing) their operations somewhere else.
With most retail investors stuck in a holding pattern and the vast majority of large-cap growth stocks currently in a state of stagnation, it’s a prime opportunity for contrarian investment strategies like Bass’s to shine. In fact, the iGaming, cryptocurrency, and biotech industries are just some of the sectors that have recently enjoyed massive booms in popularity, creating fertile ground for contrarian investment strategies (e.g., shorting) and alternative investment products (e.g., pre-IPO investments and FLPX offerings).
Given the current climate, it’s also a good time to consider shorting Hong Kong stock. Let’s take a closer look at how Kyle Bass is betting against Hong Kong and why you might want to consider following his lead.
The Current State Of Affairs For Hong Kong
Before getting into the nitty-gritty of shorting Hong Kong, let’s take a quick detour into the current state of affairs for the global investment community.
On the surface, things look pretty good for Hong Kong-listed equities. Thanks to record-breaking quarterly earnings and the continued support from international investors, big-name companies like Disney and Apple might be the favorites among retail and speculators, respectively. In particular, the tech-driven Nasdaq Composite Index might be seen as the poster child of the current state of affairs, having recently registered its tenth consecutive quarterly gain and reaching all-time highs. What’s more, with Federal Reserve Chair Jerome Powell signaling a “gradual” interest rate increase this year, higher bond yields and a supportive stock market have big institutions and individual investors flocking to the wealth management and stock picking sectors. This, in turn, has led to a surge in demand for sophisticated tools and platforms used to identify investment opportunities. In fact, research shows that the number of people taking a harder look at how to pick winning stocks has increased by 23% since the last quarter of 2018.
Why Short Hong Kong?
If you’re unfamiliar, shorting is when someone borrows or “shorts” securities in order to sell them at a lower price than they’re worth. This is usually done with the intent to profit from a decline in the underlying instrument’s price. When an investor shorts a stock, they are simply betting that the price of that particular security will decline (hence the impetus for the strategy being named after a short-seller who famously goes against the market and outperforms it).
In the grand scheme of things, shorting stocks is usually considered a very safe, low-risk strategy. After all, if the company in question fails to innovate or to execute on its business plans, the short can always exit the position by buying the security back at the original price or some other agreed-upon price lower than the original cost.
Furthermore, some people believe that shorting stocks is a great way to generate extra returns above and beyond what the market would dictate in the absence of human interference. After all, remember: the market can never tell you with absolute certainty which stocks are going to rise (and which ones are going to fall). So, by applying your own set of criteria to help you filter stocks more intelligently, you are essentially taking on the role of a stock picker, which is what Kyle Bass is doing. By applying his own set of criteria to help him pick winning stocks, he is able to outperform the market by a rather substantial margin in most situations. Now, before you start seeing shorting as the perfect solution to your investment problems, consider the fact that it is usually considered a rather high-risk strategy. Even the most experienced short-sellers can suffer big losses if the market turns against them.
Where Can I Buy And Short Hong Kong Stocks?
You can find very liquid Hong Kong stocks available for shorting, as liquidity is one of the biggest advantages of trading on the island. This, in turn, makes it easier for short sellers to enter and exit their positions quickly and with minimal impact on the market as a whole. For instance, let’s say you have $100,000 to play with and you want to short the iGaming sector. You can find a highly liquid, highly short-able security called Golden Entertainment (GRET) that trades at around $17.50 per share. In other words, you would need to put up only $17,500 to open a short position in GRET, leaving you with $100,000 to play with. And if you’re worried about where to store or keep your money, you can always establish or use a short-selling account with a discount broker for the sole purpose of shorting Hong Kong stocks. What’s more, many brokers will even let you establish multiple short-selling accounts with one license, which makes it even easier to enter short positions. For those interested in taking a more direct route, there are also a variety of platforms designed specifically for shorting stocks, such as Tradebit and GoShort. Of course, these platforms don’t just caters to shorting. They also make it easy for longs to check on the price of their positions and for all participants to track the performance of their portfolios.
The Risks Of Shorting Hong Kong
While there are a number of huge benefits to shorting Hong Kong stocks, there are also a number of risks that come with this particular strategy. Before we explore these risks, let’s review the key advantages of shorting stocks.
One of the primary benefits of shorting stocks is that it’s a very safe strategy. After all, if the company in question goes bankrupt or the stock market turns against you, you can always cover your short position at a relatively small cost. Furthermore, some people believe that shorting stocks is a great way to generate extra returns above and beyond what the market would dictate in the absence of human interference. As I mentioned earlier, by applying your own set of criteria to help decide which stocks to buy and which ones to short, you are essentially taking on the role of a stock picker, which is what Kyle Bass is doing. By applying his own set of criteria to help him pick winning stocks, he is able to outperform the market by a rather substantial margin in most situations. Now, before you start seeing shorting as the perfect solution to your investment problems, consider the fact that it is usually considered a rather high-risk strategy.
Now, let’s dive into the list of risks that come with shorting Hong Kong stocks.