HONG KONG, Sept 27 (Reuters) - Short positions on U.S.-listed Chinese stocks jumped to the highest level in a year this month as the U.S. Federal Reserve's hawkishness on monetary policy pressured global markets, Morgan Stanley said.
Global hedge funds placed sizable bearish bets on the American depository receipts (ADRs) of Chinese firms in September, resulting in the value of short interest in these shares surging to $2.1 billion as of Sept. 22, the bank said in a report, citing IHS Markit data.
Short interest flows are calculated by multiplying daily changes in outstanding shorted shares by the daily closing price, which puts the value for this month at the biggest since September 2022 when China was still under a COVID-19 lockdown.
Electric vehicle maker Nio Inc and e-commence giants Pinduoduo Holdings and Alibaba Group were the shares most shorted during the month, Morgan Stanley said.
There was barely any change in long positions on China ADRs so far in September due to low allocations to China equities by global investors, the bank said.
At last week's policy meeting, the Fed signalled an extended period of higher interest rates.
"The new short positions were mostly added during the week of the September FOMC meeting, in which the hawkish guidance caused U.S. real yields to surge, and global growth stocks to underperform," Morgan Stanley wrote.
The short-selling undermines already vulnerable Chinese equities that global funds have been offloading all year owing to worries over China's economic downturn and rising geopolitical risks.
On the flip side, short positions on other Chinese EV companies, such as XPeng and Li Auto, were unwound the most by hedge funds, potentially due to fund de-leveraging, Morgan Stanley said.
The Nasdaq Golden Dragon China index of New York-listed Chinese companies dropped more than 7% in September, while the Nasdaq 100 was down 6%.
U.S. institutional investors have been net sellers of as much as US$ 10.2 billion worth Chinese ADRs so far this year, Morgan Stanley estimates, with long-only managers selling $6.6 billion and hedge funds $3.6 billion. (Reporting by Summer Zhen Editing by Tom Hogue and Peter Graff)