Becoming the King of Bottom Fishing After Going All-In on A-Shares

The corridor light fell on his face, revealing deep wrinkles but bright eyes.

Rong Zhijian's voice wasn't loud: "What's wrong with the timing? The Australian dollar has been falling for almost half a year, and the risk in our contracts is public information. They calculated it and shorted it. This isn't insider information; it's skill."

He turned around and continued walking forward.

"What a student can calculate, we can't calculate internally. This isn't their problem, it's our problem."

Fan Hongling did not speak again.

The corridor was long and brightly lit.

Rong Zhijian's steps were steady, and his back was straight.

At 10 p.m., Rong Zhijian returned to his office.

He didn't turn on the main lights, but only the table lamp.

The orange light fell on the document, on the number 175 billion.

He sat down, picked up the phone, and dialed a number.

"President Chang, it's me."

On the other end of the phone was Chang Zhenming, the vice chairman of CITIC Group.

"Mr. Rong, it's so late."

"Excuse me, could you please double-check the $15 billion matter?"

"The money will arrive tomorrow, don't worry."

Rong Zhijian was silent for a few seconds: "What are the conditions?"

There was a few seconds of silence on the other end of the phone.

"Mr. Rong, let's talk about these things after the announcement. You should deal with the matters at hand first."

"it is good."

The phone hangs up.

Rong Zhijian put down the phone, leaned back in his chair, and closed his eyes.

Outside the window, the Hong Kong night is very bright.

He opened his eyes, picked up the documents on the table, and looked at them again.

Then he put the file down and turned off the desk lamp.

The office was plunged into darkness.

He sat motionless in the darkness.

October 19, 2008, Sunday, 10 p.m.

London, Canary Wharf, Morgan Stanley European Headquarters.

At the same time, the meeting at the CITIC Tower in Hong Kong was still ongoing.

Meanwhile, eight thousand kilometers away in London, another meeting had just begun.

The conference room was small, with fewer than ten people sitting on either side of the long table, but each of them had a prestigious title.

Morgan Stanley, Goldman Sachs, HSBC, Citigroup, Deutsche Bank, and BNP Paribas.

These names have dominated every major raid in the global financial markets over the past two decades.

The host was Richard Gray, Head of Foreign Exchange Trading for the Asia Pacific region at Morgan Stanley.

He was 47 years old, British, and had worked at Morgan Stanley for 22 years. He survived the sterling crisis, the Asian financial crisis, and the dot-com bubble burst, and thrived in each of them.

On the screen in front of him were charts showing CITIC Pacific's stock price movement over the past three months and the daily chart of the Australian dollar against the US dollar.

The two lines are almost identical, and have been declining in tandem since July.

"Gentlemen," Gray began, his voice not loud, but everyone in the conference room stopped what they were doing, "as you can see, the prey has fallen into the trap."

He projected CITIC Pacific's foreign exchange contract structure onto the screen.

"CITIC Pacific has signed 24 Australian dollar leveraged forward contracts with our counterparties, totaling up to A$94 billion, with an exercise price of A$0.87, while their actual demand for Australian dollars is only A$16 billion."

He paused for a moment: "They're not hedging; they're betting that the Australian dollar will rise, and the stakes are six times the actual demand."

No one speaks.

Gray continued, "Since July, the Australian dollar has fallen from 0.98 to 0.70, a drop of nearly 30%."

CITIC Pacific's unrealized losses widened from zero to HK$147 billion.

At the close of trading last Friday, their market capitalization was HK$143 billion, meaning their unrealized losses already exceeded their market value.

He paused, letting the number swirl in everyone's mind.

"They can't hold on any longer."

Mark Thompson, a director at Goldman Sachs Asia, leaned back in his chair, tapping his fingers lightly on the table.

He was in his early forties, with very short hair and sharp eyes.

Thompson continued, "We just received news that they plan to suspend trading on Monday and resume trading on Tuesday. According to the rules of the Hong Kong Stock Exchange, an exemption from short selling can be applied for during the suspension period, and our clients are already preparing."

"How much?" HSBC's John Lee asked.

"At least HK$50 billion in short selling."

John Lee whistled.

Gray didn't laugh; he turned to another document.

"Trading resumes on Tuesday, and our trading desk will focus on selling off our holdings. The opening target price is HK$6.50, a 55% drop from HK$14.52 before the trading halt. The full-day target price is HK$5.80, a 60% drop from before the trading halt."

"Can it really go that low?" asked Hermann Schmidt of Deutsche Bank.

"Yes," Gray said. "Because no one is willing to take over. All the buyers know it's a bottomless pit, and no one will place an order on the first day."

He glanced at the data on the screen.

"By the close of trading last Friday, CITIC Pacific's trading volume had shrunk to less than HK$100 million, with buying interest almost completely dried up. As soon as trading resumes on Tuesday, the share price will plummet like a free fall as soon as our sell orders come out."

"What about the stop-loss order?" Peter Chen of Citigroup asked.

"Stop-loss orders will drive the price down even further. Those retail investors who bought on margin will be liquidated by brokerages the moment the market opens. Their selling is indiscriminate; they'll sell the stock at any price as long as they can get it out."

He paused, and the corner of his mouth twitched slightly, not in a smile, but in a confirmation after some calculation.

"Therefore, Tuesday's opening price was not set by us, but by the market."

Thompson opened the file in front of him: "There's one more thing."

Everyone looked at him.

"Some people shorted the market last week."

Gray narrowed his eyes. "Who?"

Lu Chenzhou, a student at Renmin University.

There was a moment of silence in the meeting room, not because they didn't know the name.

On the contrary, they all knew.

"Is that the one who bought into BYD on September 26th, a day earlier than Buffett?" Peter Chen asked.

Thompson replied, "That's him. He started shorting CEFC on October 2nd with an initial position of about 80 million. He increased leverage on October 14th, expanding his total position to 320 million, with an average shorting price of 17.15."

Schmidt frowned. "October 2nd? That's two weeks ahead of our schedule."

"Does he have some inside information?" John Lee asked.

Gray didn't answer immediately; he stared at the line of numbers on the screen and remained silent for a few seconds.

"It's not inside information," he began, "it's skill. The Australian dollar started falling in July, and Huaxin Taifu's exchange rate risk is public information."

He was still trading in A-shares in September, but by October 2nd he had already set up his strategy in Hong Kong.

This shows that his decision was not impulsive, but planned in advance.

But no matter who he is, a 1.6 million yuan scheme can't turn the world upside down.

Our asking price is 50 billion, which is less than a fraction of what he offered.

Whether he's in the market or not doesn't affect the outcome.

He pushed that page of the document aside.

"continue."

Gray said, "The strategy on Tuesday was to sell off heavily in the morning to push the stock price to its target level in one go. In the afternoon, we would decide whether to add to our position based on the market reaction."

"What if the parent company steps in?" John Lee asked.

"CITIC Group has stated that it will provide a standby credit line of US$15 billion."

But this can only support confidence, not the stock price.

US$15 billion, or approximately HK$116 billion, is a large sum under normal circumstances, but it's not enough in the face of panic.

He turned to a page of the document: "Moreover, the parent company's investment is conditional."

CITIC Group holds 29% of the shares, and its shareholding ratio will increase after the capital injection.

The Rong family's shareholding ratio will decrease.

This isn't about saving CITIC Pacific; it's about saving the Rong family.

"Would Rong Zhijian agree?" Peter Chen asked.

"He has no choice but to agree," Gray said. "If he disagrees, CITIC Pacific goes bankrupt. If he agrees, he loses control. It's a single-choice question; there's no third option."