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

October 22, 2008, Wednesday, 6:30 a.m.

Beijing, Renmin University Dormitory 302.

Lu Chenzhou opened his eyes and picked up his phone from the bedside table.

U.S. stocks closed lower overnight, with the Dow Jones Industrial Average down 231 points, the S&P 500 down 3.08%, and the Nasdaq Composite down 4.14%.

He glanced at it, put down his phone, got up, washed up, and went to the playground for a run.

7:30, Room 608, Renmin University Cultural and Technological Park.

Zhang Yixing and Xia Yaozong are already waiting.

Wen Zhiyu also arrived, carrying a thermos bag containing a bowl of millet and pumpkin porridge and steamed buns.

She placed breakfast on Lu Chenzhou's table and reported in a low voice: "US stocks fell last night. The Dow Jones fell 2.5%, the S&P 500 fell 3.08%, and the Nasdaq fell 4.14%."

European markets were mixed, while Asian markets were under pressure across the board in pre-market trading, with Nikkei futures down 1.8% and South Korean futures down 1.5%.

Lu Chenzhou opened the insulated bag, took a sip of porridge, and ate a bite of meat bun.

Wen Zhiyu continued, "In pre-market trading, Hang Seng Index futures opened about 3.2% lower, at around 13800 points."

Citigroup raised its target price for CEFC China Energy to HK$6.66, Goldman Sachs to HK$12.5, JPMorgan Chase to HK$10, Merrill Lynch to HK$10.9, and CLSA to HK$9.6.

Moody's downgraded CEFC China Energy's rating from Ba1 to Ba2.

Xia Yaozong leaned back in his chair: "6.6 yuan? Citibank is trying to bankrupt CEFC China Energy."

Zhang Yixing stared at the screen: "The pre-market quote is out, CEFC China Energy, HK$5.60."

The room fell silent for a moment.

The price opened at HK$5.60, down 14% from yesterday's closing price of HK$6.52.

It has fallen by more than 60% from HK$14.52 before trading was suspended.

Lu Chenzhou didn't speak. After eating and drinking his fill, he brought up the market information page and his gaze fell on the screen.

At 9:30 a.m., the Hong Kong stock market officially opened.

The Hang Seng Index opened 412 points lower, at around 14100.

Huaxin Pacific's opening price: HK$5.60.

The moment the market opened, another wave of sell orders surged forth.

But unlike yesterday, the selling pressure wasn't as intense today.

Foreign institutions had already dumped most of their shares yesterday.

Today's sell-off was mainly driven by retail investors.

Those who bought at 7 or 6 yuan yesterday thought they got a bargain.

They panicked when the stock opened at 5.6 yuan today.

"Sell now, sell now, or it'll drop below 5 yuan."

「我昨天7块2买的，今天5块6，亏了20多个点。」

"Hong Kong stocks don't have daily price limits, so will they drop to HK$4? HK$3?"

Panic spread through the trading floor.

5.60, 5.50, 5.40, 5.30...

Unlike yesterday, the stock price did not plummet vertically, but instead declined step by step.

For every penny the price drops, new sell-offs emerge.

Xia Yaozong stared at the order book: "Someone is buying, but they can't keep up; there are too many sellers."

At 10:00 AM, Huaxin Pacific fell below HK$5.

4.95, 4.90, 4.85, 4.80...

"It's broken 5." Zhang Yixing's voice was a little hoarse.

Lu Chenzhou didn't speak; he opened the holdings interface and glanced at it.

Huaxin Taifu short position: approximately 932 million shares, cost HK$17.15, current price HK$4.85, earnings per share HK$12.30, unrealized profit of approximately HK$1.146 million.

He closed the interface and continued watching the market.

At 10:15, CEFC China Energy's stock price hit a low of HK$4.85.

A technical rebound followed, with the share price rising back to around HK$5.00.

Someone bought a lot of shares below 4.90, and the order book turned red again after a long time.

"Someone is buying at the bottom," Xia Yaozong said.

Lu Chenzhou glanced at the order book: "It's not bottom-fishing, it's short covering."

Xia Yaozong was taken aback: "You mean..."

"Some people are closing out their short positions. Yesterday it dropped 55%, and today it dropped another 15% or more. Some short sellers feel that the price has bottomed out and are starting to close out their positions."

Zhang Yixing asked, "And you? Are you flat-chested?"

Lu Chenzhou did not answer. He stared at the betting odds and remained silent for a few seconds.

"No rush."

The market closed at 11:30 a.m.

Huaxin Pacific closed at HK$5.02, down 23.01%.

The trading volume in the first half of the day was significantly lower than yesterday, indicating that the panic selling is nearing its end.

China National Building Material closed at HK$3.20 at midday, down 11.85%.

After the market closed at noon, Lu Chenzhou and Wen Zhiyu ate their boxed lunches on a bench at the entrance of the science park.

The sunshine was better than yesterday, but the air was cooler.

Wen Zhiyu sat next to him, holding a carton of milk in her hands.

"Huaxin Pacific has fallen below 5 yuan, aren't you going to sell?"

Lu Chenzhou picked up a piece of broccoli and slowly chewed it.

"Not there yet."

What is your target price?

Lu Chenzhou glanced at her but did not answer.

Wen Zhiyu didn't ask any more questions. She lowered her head and continued drinking her milk.

Hong Kong stocks fell further after the market opened in the afternoon.

The Hang Seng Index fell more than 600 points in the afternoon, breaching the 14000-point mark.

Huaxin Taifu continued its downward trend in the afternoon, with prices falling to 5.00, 4.95, 4.90, 4.85...

When the price fell to HK$4.85, there was clear buying support in the market.

Someone placed a large number of buy orders below 4.85, trying to hold this position.

However, sellers still dominate.

4.85, 4.80, 4.75, 4.70...

"It's still falling." Xia Yaozong's voice was deep.

Zhang Yixing turned his head and looked at Lu Chenzhou.

His expression remained unchanged, just like yesterday, the day before yesterday, and when he first walked into the trading hall on September 18th.

At 2:30 PM, CEFC China Energy hit a low of HK$4.85, tested the bottom twice during the session, and then rebounded slightly, fluctuating narrowly around HK$4.90.

In the last half hour of trading, the stock price remained stable between 4.90 and 4.95.

At 4:00 PM sharp, the closing bell rang.

The Hang Seng Index closed at 14266.60 points, a sharp drop of 774.57 points, or 5.15%, in a single day.

Huaxin Pacific's closing price: HK$4.91.

It fell 24.69% from yesterday's closing price of HK$6.52.

The stock fell as low as HK$4.85 during the session, a drop of 25.6%.

China National Building Material closing price: HK$2.96.

It fell 18.46% from yesterday's closing price of HK$3.63.

The stock fell as low as HK$2.91 during the session, a drop of 19.8%.

Lu Chenzhou refreshed the holdings interface.

Position held: Shorting Huaxin Pacific (HK0267)

Number of shares held: 27,118,644

Average transaction price: HK$17.15

Current market price: HK$4.91

Market value of holdings: HK$56,949,152.40

Floating profit/loss: +HKD 103,050,847.60 (+71.38%)

----------------

Position held: Short China National Building Material (HK3323)

Number of shares held: 27,118,644

Average transaction price: HK$5.90

Current market price: HK$2.96

Market value of holdings: HK$56,949,152.40

Floating profit/loss: +HKD 103,050,847.60 (+49.83%)

----------------

total

Total short selling amount: HKD 320,000,000

Total market value of holdings: HKD 125,945,602.00

Total floating profit/loss: +HKD 194,054,398.00 (+60.64%)

With the profits already realized, the account's total net assets have exceeded HK$3 million.

No one cheered in the room.

Zhang Yixing stared at the numbers on the screen, his fingers trembling.

夏耀宗靠在椅背上，长长地呼了一口气：「两天，华信泰富从9块跌到4块9，中国建材从4块跌到2块9。两天，浮盈从1.6亿变成3.01亿。」

He paused, his voice a little dry: "Brother Lu, you made 1.4 million in two days."

Lu Chenzhou calmly closed his laptop, stood up, and walked out.

Zhang Yixing asked, "Will Huaxin Pacific Securities continue to fall tomorrow?"

Lu Chenzhou paused for a moment: "The short sellers have started to close their positions, and someone is taking over. The most panicked moment has passed."

"So, are you going to balance it tomorrow?"

Lu Chenzhou remained silent for a few seconds.

"It depends."

Xia Yaozong hesitated and said, "The company's total assets have exceeded HK$3 million, which is about RMB2.64 million. That's enough to buy a fund company with a QDII quota."

"Should we reconsider? After all, the approval process takes three months, and this is only if it passes on the first try."