Short-sellers target Japanese firms amid accounting scandals

Cyberdyne was the target of an attack by short-seller Citron Research, which claimed the Japanese robotics company was "the most ridiculously priced stock in the world" and had misled retail investors over its technology assets. It dismissed the Citr
Cyberdyne was the target of an attack by short-seller Citron Research, which claimed the Japanese robotics company was "the most ridiculously priced stock in the world" and had misled retail investors over its technology assets. It dismissed the Citron report as an attempt to push its stock price down.PHOTO: REUTERS

HONG KONG • Short-sellers who made their names and fortunes wiping billions off Chinese and South-east Asian companies are setting their sights on Japan after a series of accounting scandals amplified concerns about weak corporate governance there.

Until recently, corporate managers in Japan have enjoyed relatively limited scrutiny of their governance standards and accounting rigour, and a cosy tradition of cross- holdings between companies has relegated the status of minority shareholders and the importance of adequate disclosure.

But as the government of Japanese Prime Minister Shinzo Abe has tried to clean up corporate culture and activist investors have begun to kick the tyres of Japan, short-sellers are finding fertile ground for profit.

On Tuesday, prominent United States-based short-seller Citron Research launched an attack on Japanese robotics company Cyberdyne, claiming it was "the most ridiculously priced stock in the world" and had misled retail investors over its technology assets.

Cyberdyne, which closed down 7 per cent last Tuesday, dismissed the report as an attempt to push its stock price down. It is not known whether Citron holds a short position in Cyberdyne.

It is the second attack on a Japanese company in less than a month and the sixth since December last year, when Well Investments Research challenged trading firm Marubeni, the first such campaign in Japan tracked by Activist Shorts Research.

According to Activist Shorts, the six Japan campaigns, half of them directed at Cyberdyne, have generated average losses of 23 per cent, which means profit for short-sellers, who sell borrowed stocks and buy them back more cheaply.

The phenomenon of short-sell attacks took hold between 2009 and 2011, with investment and research firms such as Muddy Waters Research and Alfred Little attracting international attention for their campaigns against overseas-listed Chinese companies, including Sino-Forest and Silvercorp.

Short-sellers and analysts said they expected more attacks on Japanese companies as regulators in China and Hong Kong fight back against short-sellers, and Mr Abe's campaign flushes out deficiencies.

Mr Soren Aandahl, director of research at Glaucus Research, said: "As Japanese markets embrace the values of Abenomics, investors of all types, shareholders, short-sellers will insist that listed companies hold themselves to higher standards of transparency, accountability and corporate governance."

He added: "That in turn makes short investment opinions more impactful."

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 20, 2016, with the headline 'Short-sellers target Japanese firms amid accounting scandals'. Print Edition | Subscribe