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

October 23, 2008, Thursday.

Beijing, Renmin University Dormitory 302.

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

Wen Zhiyu was carrying an insulated bag containing a bag of hot soy milk, two fried dough sticks, four meat buns, and an egg.

She placed breakfast on Lu Chenzhou's table: "US stocks plummeted again last night, with the Dow Jones down 5.69%, the S&P 500 down 6.10%, and the Nasdaq down 4.77%."

European markets closed lower across the board, with London down 4.46%, Frankfurt down 4.46%, and Paris down 5.10%.

Lu Chenzhou opened the insulated bag, took a sip of soy milk, and took a bite of fried dough stick.

Wen Zhiyu continued, "In pre-market trading, Hang Seng Index futures opened about 4.2% lower, at around 13200 points."

Huaxin Pacific opened at HK$4.40, more than 10% lower than yesterday's closing price of HK$4.91.

China National Building Materials was quoted at HK$2.75 in pre-market trading, 7% lower than yesterday's closing price of HK$2.96.

Xia Yaozong leaned back in his chair: "4.4 yuan? Huaxin Taifu is aiming for 4 yuan."

Zhang Yixing stared at the screen: "Foreign capital is still dumping shares. Morgan Stanley's trading desk already placed sell orders last night."

Lu Chenzhou didn't speak. After finishing his breakfast, he wiped his hands clean, brought up the market data page, and stared at the screen.

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

The Hang Seng Index opened 506 points lower, at around 13760.

Huaxin Pacific's opening price: HK$4.40.

China National Building Materials' opening price: HK$2.75.

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

The order book for China National Building Materials is filled with sell orders.

Morgan Stanley, Goldman Sachs, and Citigroup—three investment banks—were simultaneously dumping shares.

Sell ​​orders surged out like an avalanche, instantly swallowing up the buy orders.

2.75, 2.70, 2.65, 2.60...

"Foreign investors have their eyes on China National Building Materials and have been dumping shares like crazy recently. China National Building Materials is going to be smashed to pieces."

Zhang Yixing looked at Lu Chenzhou, his expression unchanged.

At 9:40, China National Building Material fell below HK$2.50.

2.50, 2.48, 2.45, 2.42...

"It's broken at 2.5 yuan." Zhang Yixing's voice sounded somewhat incredulous.

Lu Chenzhou didn't speak. He opened the China National Building Materials holdings interface and took a look.

The short position consists of 2712 million shares at a cost of HK$5.90. With the current price at HK$2.42, the profit per share is HK$3.48, resulting in a floating profit of approximately HK$9438 million.

He closed the interface and shifted his gaze to the trading screen of Huaxin Taifu.

The script is different from yesterday's.

After opening at HK$4.40, Huaxin Pacific did not plummet like China National Building Material.

Someone placed a large number of buy orders below 4.40, holding firm at this level.

4.40, 4.40, 4.40...

Sellers are dumping shares, while buyers are filling them.

The two sides engaged in fierce competition at the 4.40 price level.

"Someone is supporting the market," Xia Yaozong said.

Lu Chenzhou stared at the betting odds and remained silent for a few seconds.

"It's not market intervention; someone is accumulating shares."

Xia Yaozong was taken aback: "You mean?"

"Some people are accumulating shares in large quantities below 4.40. Huaxin Taifu fell from 22 yuan to 4.4 yuan, a drop of 80%. Some institutions feel that the price has bottomed out and have started to enter the market."

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

Lu Chenzhou did not answer. He stared at the betting odds, his fingers resting on the mouse, motionless.

At 10:00 AM sharp, the selling pressure on Huaxin Taifu began to weaken.

The buy orders at 4.40 remained strong, and the stock price never fell below this level.

China's building materials sector continued its downward trend.

2.40, 2.38, 2.35, 2.32...

At 10:15, China National Building Material Co., Ltd. (CNBM) hit a low of HK$2.32, a drop of 21.6%.

On the order book, sell orders at a loss and forced liquidation surged, causing the stock price to fluctuate wildly around 2.32.

Then, Lu Chenzhou made a move.

His finger tapped on the keyboard.

It's not China National Building Materials.

It is Huaxin Taifu.

He opened the short position interface of Huaxin Taifu.

Huaxin Taifu short position: approximately 932 million shares, cost HK$17.15.

Current market price: HK$4.40.

Earnings per share: HK$12.75.

Unrealized profit: approximately HK$1.188 million.

His fingers hovered above the keyboard for about two seconds.

Then he pressed it.

Close out positions.

932 million shares were bought and liquidated at a price of HK$4.40.

The order confirmation flashed briefly.

The room fell silent instantly.

Everyone was staring at the screen.

"You've evened it out?" Xia Yaozong's voice trembled slightly.

Zhang Yixing didn't speak; he looked at Lu Chenzhou's profile.

It remains calm, exactly the same as when I first closed out my short position in BYD.

Lu Chenzhou's move to close out his positions was like a bugle call to arms.

At 10:16, Huaxin Taifu's stock price began to rebound.

4.42, 4.45, 4.48, 4.50...

Some people are accumulating shares below 4.40, while others are closing their positions at 4.40.

Lu Chenzhou's closing order became the final straw that broke the camel's back for the short sellers.

After closing out his position, Lu Chenzhou opened China National Building Materials, stared at it for a few seconds, and finally gave up.

It's not that he doesn't want to short sell, but that he can't get the coupons.

To short sell, a brokerage firm must hold shares of China National Building Material, but these shares have all been borrowed by foreign investors, so they can't get any.

China National Building Materials Group continues to hover at low levels.

2.35, 2.38, 2.40...

There was no rebound, nor did it continue to fall; it was forgotten in a corner.

The market closed at 11:30 a.m.

Huaxin Pacific closed at HK$4.80, rebounding 9% from its low of HK$4.40.

China National Building Material closed at HK$2.40, down 18.92%.

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.

"After you liquidate your position in CEFC China Energy, what do you plan to buy? A-shares?"

Lu Chenzhou shook his head: "Mainland private equity firms are responsible for A-shares, while Hong Kong private equity firms will continue with Hong Kong stocks. As for what to buy, I'm not sure yet; I'm waiting."

After the market opened in the afternoon, the decline in Hong Kong stocks narrowed.

The Hang Seng Index rebounded from its lows in the afternoon but closed down 506 points at 13760.

Huaxin Pacific continued its rebound in the afternoon, reaching a high of HK$5.05, before slightly retreating to close at HK$5.00.

It rose 1.83% from yesterday's closing price of HK$4.91 and rebounded 13.6% from the intraday low of HK$4.40.

China National Building Materials Group was not so lucky.

The stock continued to hover at low levels in the afternoon, closing at HK$2.46, down 16.89% from yesterday's closing price of HK$2.96.

The stock fell as low as HK$2.32 during the session, a drop of 21.6%.

Throughout the day, foreign investment banks dumped more than HK$3 million worth of Chinese building materials stocks.

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

Lu Chenzhou refreshed the holdings interface.

Huaxin Pacific: Position closed, with a profit of approximately HK$1.188 million.

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$2.46

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

Floating profit/loss: +HKD 103,050,847.60 (+58.31%)

With the profits already realized, the account's total net assets have exceeded HK$3.2 million.

No one cheered in the room; everyone was numb from watching.

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

Xia Yaozong leaned back in his chair and let out a long sigh: "Huaxin Taifu, from 22 yuan to 4.4 yuan, made 1.18 million yuan in a month from short positions."

China National Building Materials still holds the shares, with a floating profit of over 9300 million yuan.

Brother Lu, you currently have 3.2 million in cash and unrealized gains in your account.

Lu Chenzhou nodded calmly and then looked at Xia Yaozong: "How's the contact going?"

Xia Yaozong replied: "In 2007, most public fund companies had assets exceeding 10 billion yuan. Currently, the value of a small or medium-sized public fund company is around 200-500 million yuan."

As long as you pay, the deal can be done immediately. There are many sellers. The main delay is the approval process, which takes at least three months and there's no way to shorten it.

As for private equity, it normally takes about two weeks, but expedited processing can be completed in two days.

Lu Chenzhou replied, "Just follow the normal procedure."

Xia Yaozong hesitated and asked, "Money?"

He didn't say anything more, but everyone understood.

According to the previously signed wealth management contract, the profits would be split 30/70, with Lu Chenzhou taking 30% and them taking 70%.

The current value is HK$3.2 million. After liquidation, he will receive approximately HK$1.4 million, which is about RMB 1.23 million. This is still RMB 2 million short of the minimum RMB 0.77 million.

Lu Chenzhou frowned slightly: "Can I get a loan from a bank?"

Xia Yaozong shook his head: "With the current financial crisis, no bank can lend money. They're basically withdrawing loans, so it's unlikely. Even if they can lend, they usually require collateral."

Stocks are normally valued at 50% to 70% of their face value, but during the financial crisis, they were mostly valued at 30%, meaning you couldn't borrow much.

Lu Chenzhou was silent for a moment: "Let's go through the procedures! If nothing unexpected happens, I should be able to pay the money within three months."

Xia Yaozong opened his mouth as if to say not to put too much pressure on himself, but remembering that Lu Chenzhou had grown from 1 to 3.2 million in a month, he replied, "Okay, I'll arrange it right away."