Bill Hwang’s Blowup Begs Questions About The Next “China Hustle” In Its Wake

If there was thing that was peculiar about Bill Hwang’s blowup, it was the choice of some of his investments. Hwang had gone long several questionable names that had been targeted by short sellers in the past. 

Some of the names Hwang was in – like GSX, for example – also saw intense call buying over the span of months after being targeted by short sellers, likely helping drive up the equity’s price by several multiples of itself in what was an obviously unnatural fashion to all observers with more than one or two brain cells. It is unconfirmed whether or not Hwang played a part in these options purchases in these questionable names, but now it at least appears that some of Hwang’s stock selections have caught the eye of the media. 

For example, the South China Morning Post couldn’t help but notice that “Archegos was loaded up with investments in Chinese companies that have been accused of fraud”. The article asked whether Hwang’s blowup was the conclusion to the “unfinished story” that was laid out in The China Hustle, a documentary about exposing U.S. listed China based fraudulent companies.

The movie laid out how numerous Chinese companies systematically committed fraud across various U.S. exchanges, siphoning millions of dollars out of the country at the expense of U.S. investors and unwilling funds. 

SCMP couldn’t help but draw the parallel between the short sellers who acted as protagonists in the movie and Hwang. This is because those same protagonists had alleged fraud in numerous names in Hwang’s portfolio. In addition to GSX, there were also names like iQiyi and Vipshop, which had been targeted by short sellers Muddy Waters Research, J Capital Research and Citron Research as frauds. 

And many of these companies accused of fraud, notably GSX, were somehow able to buck the accusations – despite the gravitas of those making the allegations – and mysteriously rise higher. 

But then, Hwang blew up. The article laid out how Hwang’s positions in names cascaded lower, one after the other, after Viacom sold shares to take advantage of what analysts were widely considering to be an overvalued stock, after it had risen 600% over the course of less than a year. 

And so the SCMP notes that after watching the “delicately balanced bomb” of Hwang’s portfolio eventually detonate, eyes have turned to China Huarong Asset Management.

The asset manager “has portfolios of distressed assets monetised in its US$22 billion bonds, that are being leveraged by US investors”, SCMP writes. “Fitch helpfully downgraded its credit rating on the bonds from ‘A’ to ‘B’ – one notch above junk – after a panic sell-off.”

At the end of the day, Hwang’s blowup leaves us with more questions than answers. Namely:

1. Why did Hwang have a portfolio full of names accused of fraud?
2. Why did several of his names, like DISCA and VIAC, mysteriously rise higher at aggressive clips? Was Hwang in the options market in these names?
3. Could China Huarong Asset Management be the next bomb to go off?

For these answers and more, stay tuned…