chinese tech stocks continue to be beaten down  but short sellers appear to be targeting another sector known for its high valuations real estate the real estate industry in china had the largest increase in short selling compared to other sectors in the third quarter according to data analytics firm s3 analytics with 742 million of new bearish bets in total that compares to a reduction of around 150 million in shorts on the tech sector shortsellers profit when stocks fall they borrow shares sell them and plan to repurchase them when the price is lower and make a profit from the difference troubles in chinas real estate market arent new etfs tracking the msci china real estate index such as chir  have declined by more than 35 this year short sellers of chinas real estate sector already have profits on paper of 26 billion yeartodate according to s3s data thats a 45 increase over the same period last year but although short sellers have been taking profits throughout the year theyve also kept taking new short positions in stocks that havent fallen by as much short interest in the china real estate sector has been declining for most of 2022 but it would be incorrect to think that short sellers were trimming their positions says the research note from s3 to its clients here are the five stocks that have seen the most significant increase in short positions in us dollar terms in september ke holdings  which saw the largest increase in shorts in september is alleged to be engaged in systemic fraud by muddy waters the shortseller says the chinese company whose new yorklisted shares are up 34 this year has inflated its new home sales by over 126 ke holdings for its part has denied the allegations and said muddy waters report shows a lack of basic understanding of the housing transactions industry in china analysts on average have a buy rating on the stock giving it almost 30 upside to its current price according to factset data the second mostshorted stock china overseas land  investment  is also popular analysts have on average a buy rating on the stock and give it an upside of over 32 according to factset whats behind the new bearish bets chinas real estate market had boomed for two decades resulting in a rise in speculative behavior about two years ago beijing cracked down on developers high reliance on debt to make housing more affordable to its citizens this move along with its zerocovid policy has exacerbated the housing downturn and impacted the broader economy chinese authorities are now finding it hard to revive the sector despite cutting interest rates to drive up demand from firsttime buyers the peoples bank of china has cut its 5year loan prime rate three times this year to 43 from 465 at the end of 2021 efforts to push down mortgage rates are clearly intended to support housing demand but we doubt this alone will be sufficient to put a floor beneath home sales which have continued to decline said julian evanspritchard senior china economist at capital economics the key factors holding buyers back arent the cost of borrowing but the expectation that prices will fall further and concern about the ability of indebted developers to complete presold apartments as the downturn in the realestate sector is predicted to last longer short sellers should continue to be active according to s3 analytics short sellers may not get the performance they earned in their china evergrande group trade  but they expect to outperform short selling in the other regional sectors it added