Morgan Stanley Goes Against the Shorts in China

On the morning of May 18, Kevin Barnes published a report accusing executives of Chinese fertilizer maker Yongye International of using acquisitions to loot cash from the company and manipulate earnings. Barnes, an analyst at hedge fund Absaroka Capital Management in Cheyenne, Wyo., said Absaroka had sold Yongye shares short, betting they would decline. The stock fell 23 percent over the next two days.

While that sounds like yet another case of a short-seller bringing down the stock of a Chinese company trading on a U.S. exchange, this story has a twist. Less than two weeks after Barnes published his report, Morgan Stanley‘s Asian private equity unit said it would buy $50 million of preferred stock in Yongye, pushing its Nasdaq-listed shares up 42 percent in a single session.