New Oriental Education & Technology Group Inc. (EDU:US) surged to a four-month high in New York on speculation short seller Carson Block’s retreat from Chinese equities is bolstering confidence in the stock.
Shares of New Oriental jumped 8.3 percent to $20.96 by 2:51 p.m. in New York, poised for the highest close since July 16. The Beijing-based education services provider was the second- biggest gainer on the Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S., which rose 0.3 percent to 92.23.
Block, who has alleged Chinese companies listed in North America have misstated earnings and assets and bet on their declines, said in a Bloomberg TV interview Nov. 27 that he had lost interest in short-selling the stocks, claiming the government works with companies to conceal fraud. The founder and research director of Muddy Waters LLC, Block said in July that New Oriental inflated its cash balances to gain approval from its auditor, spurring the stock’s slide to a five-year low.
“It would be a very big relief for New Oriental investors to see Muddy Waters getting out of China,” Ella Ji, an analyst at Oppenheimer & Co. in New York who rates New Oriental the equivalent of buy, said by phone today. “A big overhang just removed itself. This shows that very likely Muddy Waters doesn’t really have any more evidence.”
New Oriental said at the end of September that a probe found no evidence to support accounting fraud allegations made by the short seller. Block countered the results by saying he was “more convinced than ever” that the company was misleading investors.
Phone calls to New Oriental by Bloomberg News seeking comment on Block’s shorting decision weren’t returned.
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