Amid China’s FinTechs, Small Caps, Short Sales, Big Gains

For short sellers – those who bet that stocks will fall rather than rise – amid Chinese FinTechs, this week has led to big gains.

As reported by Bloomberg, a selloff was sparked on Friday among small cap stocks that belong to FinTechs. The website offered the example of Chong Sing Holdings FinTech Group, which on Friday fell 33 percent to just under seven Hong Kong cents on Friday.

According to the report, more than 200 million shares traded that day, which is four times the average daily volume logged over the past year. Generally speaking, when volume spikes to that degree, news or sentiment is changing – in one way or another, positively or negatively. In this case, it might be surmised that the news and/or sentiment is … well, negative, given the stock price drop.

The impact Friday was widespread, as another 10 firms were down at least 20 percent on the day, which shaved the equivalent of $4.8 billion USD off tech firms overall, with some companies off far more – such as 75 percent slides for Rentian Technology Holdings (focused on the Internet of Things).

Many of these firms, it is true, trade for pennies, so any movement at all is outsized and eye-popping when it comes to percentages.

The sector is one that is evolving, but there are signs that shakeouts still loom. The regulatory environment is far from crystallized.

There are always company-specific considerations at hand when investors bet on or against a stock. But then again, as reported earlier this month by supchina, valuations of FinTech companies have been waning, as seen through 2018, with market caps of several companies, such as Xinfu and ZhongAn Online, dropping by more than 60 percent. One sector that has been hit hard has been peer-to-peer lending, where more than half of companies have shuttered through the past year and a half, a result of increased regulations – and where mandates expand all manner of legal and accounting audits.

The site also reported that four major indicators tied to the online banking industry have declined as a group for the first time in 11 years – spanning online loan turnover (down 50 percent), the number of platforms on offer (down 44 percent) and loan balances (off 30 percent).

It’s a rocky road, to be sure, for FinTech’s once explosive growth – but to be sure, there is room for innovation as the regulatory environment becomes clearer. In the meantime, the old adage holds true, across investor sentiment and once soaring stock prices: namely, that what goes up must come down.