The afternoon session opened.
Hutchison Whampoa's stock plunged again, breaking below HK$4 and continuing downward.
This time, besides the Qi DeZun family selling shares, margin‑shorting funds also entered.
In fact, some margin shorts had appeared in the morning, but fewer. After watching all morning, institutions and funds concluded that under such heavy negative news, a collapse was inevitable. During the lunch break, many increased their margin shorts, selling large amounts of stock, planning to buy back later at lower prices to pocket the difference.
Margin financing and shorting is simply leverage at the broker. Financing increases buying power — going long. Margin shorting means borrowing shares from the broker, selling them, then buying back later to return — going short.
Margin shorting is similar to options shorting, but options have expiry dates — minimum 30 days, often 60 or 90. Margin shorting is better, since longer time means more uncertainty.
Li JiaCheng and his allies avoided margin shorting because it required borrowing shares from brokers or banks. Only HSBC held Hutchison shares in Hong Kong. They feared borrowing heavily from HSBC would leak news to Hutchison or Lin BaoCheng. So they chose the options market instead.
Options shorting, though time‑limited, allowed early settlement with counterparties at agreed prices. With secrecy, it was safer.
Once Hutchison's negative news broke, institutions and retail investors could short freely by borrowing shares from HSBC.
The Qi family simply sold shares. But most institutions and retail investors shorted via margin. The plunge was softened only because Lin BaoCheng and allies kept buying, plus some bottom‑fishers. Otherwise, the fall would have been even harsher.
Lin himself raised HK$100 million. Hutchison used HK$100 million for buybacks. His partnership with Iwasaki FengLong had HK$840 million. While much of that was tied up as counterparties to option shorts, plenty was also buying shares. HSBC too was buying.
So despite the fierce drop, Lin and allies weren't worried — they bought everything offered.
As the price fell, the pace slowed. Profits from shorts shrank, fewer dared short, while more bottom‑fishers entered. The market was a battle of capital — whoever had more money was stronger.
At the Hong Kong Stock Exchange, Hutchison was the star of the day, drawing huge attention.
In the VIP room, Li JiaCheng, Feng JinXi, Niu BiJian, and Bob watched Hutchison's price and options market.
As the price broke HK$3.5 and neared HK$3, the fall slowed.
Feng said: "HK$3 was the previous low. It's support. That's why the fall slowed. If it breaks, more shorts will join, and another wave down will come."
Li asked: "After this morning's rebound, now support again — should we settle some shorts now?"
Bob immediately objected: "The shorts clearly dominate. Settling now means less profit. Better to wait for lower prices."
Niu agreed: "Yes, wait until it breaks HK$3."
Feng thought aloud: "Here's what we can do. Watch if HK$3 holds. If it doesn't, perfect — settle based on the trend. If it does hold, we pool funds, margin‑short, and smash the price below HK$3. Then panic will follow, and we close our shorts at profit."
"Hutchison has huge losses. Below HK$3, its market cap is only HK$1 billion. That's about right. Further downside is limited. Not worth more risk. What do you think?"
Bob nodded: "Mr. Feng, you're the expert. Let's do it."
"I agree," Niu said. "Over 50% profit is enough. Time to cash out."
Li didn't object, but said: "I have no funds left."
Feng replied: "At HK$3, Hutchison's cap is HK$1.2 billion. To smash it, HK$40 million is enough. Each of us HK$10 million. Even less may do."
Bob turned to Li: "If you can't contribute, I'll add another HK$10 million. Margin shorting here means we sell borrowed shares above HK$3, buy back below, and pocket the difference. More capital, more profit."
"I have no spare funds. If Mr. Bob is willing, then thank you," Li said. He had already arranged to buy shares near HK$3. He wouldn't spend more to short. To him, HK$3–3.5 wasn't high. Even if Hutchison dipped below HK$3, as Hong Kong's largest landlord, its property prospects meant the stock would recover.
So Li believed buying at HK$3 wouldn't lose. At worst, he'd hold longer.
As for the option shorts, he saw no problem. Feng's plan was sound — break HK$3, settle shorts, and lock in profit.
They believed that once HK$3 broke, longs would panic and accept settlement.
But they didn't know: over HK$200 million of their short counterparties were Iwasaki FengLong. They would never settle cheaply.