business

Short-sellers smell blood as Japan Inc wounded by accounting scandals

14 Comments
By Umesh Desai and Michelle Price

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Tip of the iceberg

0 ( +3 / -3 )

Makes me think of the Carpenters song, its only just begun....

-5 ( +2 / -7 )

Lots of conjecture, not much substance in this article that apparently first appeared in Reuters. And, if you read all the way to the end, it is clear that the short sellers have turned their attention to Japan not because there are special problems in Japan but because the Hong Kong and PRC regulators have clamped down on these buggers.

Specifically、the articles says:

But a crackdown by authorities in Hong Kong, the main market for offshore Chinese stocks, has made such attacks riskier, while investors are increasingly pricing in doubts over Chinese companies, making such attacks less lucrative.

In other words the scum bags are coming to Japan because the heat is on in Hong Kong.

0 ( +5 / -5 )

After the Olympus scandal, I will never trust Japanese accounting practices again.

1 ( +4 / -3 )

good to see some justice being done

0 ( +3 / -3 )

In other words the scum bags are coming to Japan because the heat is on in Hong Kong.

The threat of short selling is a strong motivation for coompanies to keep noses clean, and their business activities legit. "Cracking down" means governments are protecting businesses from the conseqences of questionable behaviour, which s wrong. Any system is subject to abuse, but well run companies which are transparent and honest needn't worry about short sellers.

The sooner these "scumbags" come to Japan, the better. Between Olympus and Toshiba (and god knows how mamy others) we need some kind of outside threat to make companies clean up their acts. Certainly the governmemt has not done its part.

3 ( +6 / -3 )

Google "Japan short ETFs" if you want to put your money on the table, and do your homework. Probably not the worst possible time to get in, but avoid the 2-3x leveraged funds. You're insured against loss in a way that you aren't with regular shorts (ie, you can't lose more than the amount you initially invest, you will not face a margin call), but losses can mount very fast if the market turns against you, and the market for short ETFs can suddenly disappear if it does. Not a play for the feint of heart.

1 ( +2 / -1 )

After the Olympus scandal, I will never trust Japanese accounting practices again.

Agreed. Japanese "accounting" is more math than business concepts. I've seen budgets submitted in MS Word for godssake.

0 ( +0 / -0 )

No.... in other words the "scumbags", are coming to Japan because it is fertile territory. You want the "scumbags", they're like Roach Killer, their job is to find and kill companies that are over priced and are just too good to be true. Like the article mentions... lax oversight. That is music to their ears. Once they've identified their Roach... the burden of proof is on the Roach.... and the lax oversight is brought to lite. They're like the Police for International Accounting.... and usually if its too good to be true... guess what?

2 ( +2 / -0 )

they're like Roach Killer, their job is to find and kill companies that are over priced and are just too good to be true

I think you are confused.

"Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit."

The "job" of short sellers is to make a profit for themselves through a high risk strategy. Their activities may call attention to a company that has problems but that is not their primary goal. They are by no stretch of the imagination "the Police for International Accounting."

Even those who defend short selling describe any contribution short sellers make to better corporate governance as "inadvertent." And, whether they do make a positive contribution is highly controversial. Regulators in a number of countries see or have seen short sellers in a very negative light.

Short selling has been banned or restricted at various times by a wide range of governments. It has long been considered to be a major element in the 1929 stock market crash and subsequent Great Depression.

I've not seen any references to short sellers getting involved in the management of companies or closing them down. Typically a short seller is involved in the stock of a given company only for a very short period, sometimes only a matter of days.

Moreover, as far as I know, short sellers played no role whatsoever in discovering either the Olympus or Toshiba accounting scams and the Cyberdyne company cited in the article is tiny. In 2015 in had only 104 employees. It has essentially only one product, a so called "robot suit" and its stock is traded on Mothers not the main stock exchange. It's stock price may well be absurd but whether that is due to management playing games or investors have absurd expectations is far from clear.

-5 ( +0 / -5 )

Short selling has been banned or restricted at various times by a wide range of governments. It has long been considered to be a major element in the 1929 stock market crash and subsequent Great Depression.

When has it been banned and what were the effects? They sure weren't positive!

I've not seen any references to short sellers getting involved in the management of companies or closing them down. Typically a short seller is involved in the stock of a given company only for a very short period, sometimes only a matter of days

So what? Are you suggesting that being in management places one in better standing? I remind you of the Toshiba scandal. The leadership there lied. They mislead the public. They failed. So, why should the absence of short sellers in management be a concern?

https://en.wikipedia.org/wiki/Andrew_Left

Moreover, as far as I know, short sellers played no role whatsoever in discovering either the Olympus or Toshiba accounting scams and the Cyberdyne company cited in the article is tiny. In 2015 in had only 104 employees.

So, because you believe it had no role in one incident of fraud, you believe it has no role finding other frauds?

I think you fail to understand how this mechanism works. I cannot simply slam a company make tens of millions of dollars shorting a company. Long and short positions are exact opposites. Taking a long position on a 1,000yen stock, the most I can lose is 1,000yen and my gain is essentially unlimited. Shorting a 1,000yen stock, the max I can make is 1,000yen per stock, while potential losses are infinite. This really isn't a get rich pipedream. If investors short all over the place, they're going to lose their shirts.

2 ( +2 / -0 )

@ Bullfighter.... I've short sold millions of shares... literally millions. I know exactly what it means. Short selling is a tool and a way to make a profit when you think a stock is over priced, will have bad earnings, sales, or any sort of negative news come out in the future. It is a legit way to make money. The same as Buying a stock. In Japan you can only execute a Short Sale on an up-tick... same with the USA. In addition there are heavy penalties if you fail to execute the borrow an make delivery of the shares. A hedge fund that focuses on mismanaged companies or companies the cook the books is a good thing... why.... because those companies always, always, drop in price eventually, and investors are hurt... one way or the other investors will be hurt. A Hedge fund might catch the trouble early and bring it to lite before the company goes too far an bankrupts itself... at which point investors lose everything.

3 ( +3 / -0 )

@bullifghter - There were 4 congressional inquiries into short selling in a few years after the 1929 crash looking for short sellers to be the scapegoats. They all failed to find that was the case. People want to blame short sellers rather than acknowledge they were too greedy and bought on false hopes and unrealistic dreams and valuations. Those eventually fall back to earth. @danalawton1 is correct. Short sellers have the view that a company's price is too high and will fall for any number of reasons. The article points out Sino-Forest which was accounting problems, identified by short sellers and the issue is that there was a negative view on Muddy Waters for pointing it out, not the company for falisfying records! @takeda.shingen.1991 makes a number of good and accurate points. Short selling is indeed very high risk, so the traders taking positions need to be confident of problems and so make a valuable contribution to stock price discovery. That is why IOSCO, the association of 95 global regulatory organisations say it is a valuable part of the capital markets.

3 ( +3 / -0 )

Short-selling has a neutral impact over time on the market for a company's shares. Why? Because short positions are always closed by buying back the shares. Long-buying has a neutral impact, for the same reason in reverse. Share prices go up and down for other reasons, usually to do with earnings, products, markets and other external events, accounting scandals, brilliant/terrible management, and so on. The article is confusing activism with short selling.

0 ( +0 / -0 )

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