So, for quite sometime now, I have been thinking that the Chinese stocks like $HKD (I still think this stock is a scam obviously), but others like $TOP etc. were just shell companies laundering money and what have you.
But now, I am starting to get the impression that the Chinese have a good understanding of the market and it’s trends and are using this to their advantage. (the smart part)
To further explain, I’ve noticed three significant trends with these type of stocks.
1). Low float. The outstanding shares can be something like 20m or 30m shares outstanding, but the floats are minute, for example the floats being like 5m shares. This is usually due to locked up shares or large insider ownership.
2). No options. A lot of these companies weren’t available for options trading which significantly hindered short sellers from being able to hedge their positions, as well as having another channel to assist short sellers in driving down the price.
3). Short interest. These type of stocks love people betting short against them. Reason being, they know the floats are super low which can drive the price up easily and significantly causing significant and rapid margin calls.
I found this to be very interesting and quite innovative.
To be clear, I am not advocating to buy these Chinese stocks, this is just a simple observation, but, with that being said, it would be nice if successful American companies who are looking to go public opted to this formula as not only does it raise more capital for the company itself, it builds wealth for those whom are invested, while simultaneously creating brand awareness through attention, essentially, another channel of free marketing.
This is just food for thought.
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