TheChek News Flow

The sudden drops raise fresh questions about corporate governance and regulatory oversight in a crossroads for global finance.

HONG KONG — Even by the standards of Hong Kong, where the ups and downs of the stock market rival events at the horse track as a spectator sport, three recent flameouts have been spectacular.

A Chinese marble miner named ArtGo plummeted by 98 percent in one day. A Chinese automaker-turned-education-company called China First Capital dropped 78 percent. Another education firm, Virscend, was restrained by comparison, falling 33 percent in one day.

The tumbles over the last two weeks have little to do with the pro-democracy demonstrations that have subsumed Hong Kong for five months and sometimes caused gyrations in the local market. Instead, they point to more persistent problems in the market, which has long been Asia’s financial capital. Regulators let some dubious practices slide. Rules stifle naysayers who might rein in gullible or overly exuberant investors.

As a result, bubbles inflate regularly in Hong Kong, with sometimes alarming speed. Then they pop, often leaving small investors with nothing but air.

Despite the political problems, Hong Kong has thrived at the crossroads between China and the rest of the world. Hong Kong’s stock exchange is the world’s sixth most valuable, according to the World Federation of Exchanges, an industry group. The British lender HSBC, the Chinese internet giant Tencent and a slew of Chinese banks and oil companies have raised hundreds of billions of dollars there. Last Tuesday, Alibaba, the Chinese e-commerce titan, raised more than $11 billion selling shares there.

But critics like David Webb, a longtime Hong Kong shareholder activist, say the local rules keep the market less than healthy.

For example, no disclosure is required when a big investor pledges shares in a company as collateral for a loan. If the loan must suddenly be repaid, the investor may have to sell a lot of shares in a hurry, driving down the price.

Hong Kong takes a dim view of short sellers — investors who bet that stocks will go down. While companies usually hate short sellers, they serve an essential role in heady markets by calling out stocks that may be trading at much higher prices than they should.

Short sellers also create alternatives to simply selling shares and walking away. Somebody who shorts a $40 stock and expects it to fall to $20, for example, is still essentially investing in the stock, albeit at a lower price. Without short selling, an investor who thinks the stock is worth less has no choice but to sell it, which is another way of saying the shares should be worth nothing.

But the Hong Kong authorities consider short sellers too disruptive. They allow investors to bet against only a limited number of companies. They also punish those who aggressively question a company’s numbers. In recent years, Hong Kong officials have reprimanded and fined Moody’s, the ratings firm, and a short seller named Andrew Left, accusing them of inaccuracy in their criticisms. Both have disputed the accusations.

A spokesman for the Hong Kong Stock Exchange’s owner, Hong Kong Exchanges & Clearing, declined to comment. A spokesman for the Securities and Futures Commission, the territory’s top financial regulator, said it “will continue to monitor the market and will not hesitate to use its statutory power to take action against parties involved in market misconduct where appropriate.”

Other factors keep the market frothy. Hong Kong has increasingly lowered barriers for investors in mainland China to cross the border and invest. Even more than in Hong Kong, mainland markets are prone to booms and busts, and some experts say those investors bring some of that volatility with them.

Hong Kong now appears to be alert to problems. The territory’s regulators recently warned listed companies not to mislead investors or include “materially false information regarding their counterparties in a transaction.” It also issued a warning to private investment firms after identifying what the regulator described as “dubious arrangement and transactions,” without offering specifics.

The three stocks that recently fell so precipitously were not flying under the radar. Mr. Webb, the shareholder activist, had placed all three on a long list of Hong Kong “stocks not to own” after questioning their ownership and stock valuation.

“ArtGo should now be renamed ‘ArtGone,’ while Virscend should be renamed ‘Descend’ and China First Capital should be renamed ‘China Lost Capital,’” Mr. Webb said in an interview on Thursday. The companies did not respond to requests for comment.

ArtGo’s stock skyrocketed this year, going from around 6 cents a share in January to almost $2. The company mines marble for tabletops and bathrooms, yet investors appeared to be treating it as more valuable than some of the highest-flying technology stocks in terms of its share price relative to its earnings.

The surge in value opened up ArtGo’s shares to even more investors. It passed a threshold that would allow MSCI, a company that manages stock indexes, to include it in its China Index. Because that index is widely followed by investors, many ordinary people began to add ArtGo shares to their portfolios.

Then, on Nov. 20, MSCI reversed its decision, citing the need for further analysis of ArtGo’s business. Its shares fell 98 percent in response.

Other contenders for the MSCI index have also prompted concerns. An investment company called China Ding Yi Feng Holdings was added by MSCI last year after it soared by nearly 3,000 percent, clearing the MSCI threshold. But by March of this year, it was under investigation by regulators, and its trading was frozen.

The MSCI China Index was introduced in 2018, after much lobbying from the Chinese government to include previously restricted stocks trading in Shenzhen and Shanghai markets. MSCI did not respond to requests for comment.

China First Capital’s plunge occurred last Wednesday. The company said in a filing with the stock exchange that it was not aware of a reason for the movements. But it added that a company controlled by its chairman, Wilson Sea, had sold shares in China First Capital that had been pledged as collateral for a loan agreement.

Wednesday was also the day that shares of Virscend, which is partly owned by China First Capital, took a fall. In China First Capital’s filing, the company said it had sold Virscend shares as part of a collateral agreement.

In its own filing, Virscend said it was unaware of a reason for the drop.

This week’s blockbuster acquisition of Tiffany strengthens the French conglomerate’s position as luxury’s biggest player, putting rivals Kering and Richemont on notice.

Storied American jeweller Tiffany & Co has resisted takeover for years. When it finally agreed to a tie up with LVMH, it was in a deal of superlatives. The $16 billion dollar acquisition, announced Monday, is the largest ever in the luxury sector. It puts Tiffany in the hands of the world’s biggest luxury goods group, owned by France’s richest man.

The deal will elevate LVMH’s already solid lead in the luxury sector, giving it a bigger foothold in the US and, in one move, making its jewellery and watches segment much, much bigger. It’s a game changer for the division, putting it on a level with Swiss rival Richemont, the industry’s long-time leader in "hard luxury."

Though some question its luxury credentials and growth potential, Tiffany is one of the world’s few sizeable targets in branded jewellery. The deal strengthens LVMH’s large and diversified portfolio, something many investors have embraced as a sure-fire bet.

Earlier this month, LVMH’s market capitalisation passed the €200 billion ($224 billion) mark on the Paris Bourse for the first time. It’s now nearly three times bigger than arch-rival Kering and five times bigger than Richemont.

Within the luxury sector, it appears, bigger really is better. Indeed, the heft of its portfolio gives LVMH a significant edge in distribution and media, where it enjoys leverage with multi-brand retailers, mall owners, real estate developers, magazines, influencers and other key players in the fashion ecosystem. LVMH also has an advantage in attracting and retaining top talent, who it can offer better compensation, more interesting career opportunities and larger budgets.

“This deal just reinforces the reality that scale matters in the industry,” said Erwan Rambourg, global co-head of consumer and retail research at HSBC, in an email. The bank has noted the emergence of a “bling supremacy” and likened LVMH to the “Nike of luxury.”

“Luxury execs might not find this comparison flattering but it is a reality that scale and speed at LVMH have become so paramount that no other luxury competitor is now comparable as a result,” HSBC said in a note earlier this month.

As The Business of Fashion and McKinsey & Company’s The State of Fashion 2020 report suggests, fashion is becoming a winner-takes-all business. The industry’s top 20 players by economic profit — a list that includes “Super Winners” like Nike and Inditex — account for more than the combined economic profit of the entire industry, the report found.

Scale benefits are by no means unique to fashion, of course. Across industries, from automobiles to technology, the bigger you are the easier it is to stay on top. “It is natural that young industries, like modern luxury goods, consolidate,” said Bernstein analyst Luca Solca.

Whether the Tiffany transaction will unlock a fresh wave of M&A within the sector remains to be seen, but it’s put LVMH’s competitors on notice. The deal is particularly bad news for rival Richemont, which owns brands including global jewellery giant Cartier and Van Cleef & Arpels.

To be sure, LVMH’s Tiffany deal is not without risks.

Acquisitions are expensive, time-consuming and can prove tricky to integrate. Tiffany will transform LVMH’s position in watches and jewellery, catapulting the division’s contribution to operating profit to 13 percent of overall earnings from 7 percent last year. But it also leaves the luxury giant on the hook to ensure efforts to turnaround fortunes at the storied, but faded jeweller are successful. In the first half of 2019, worldwide net sales at Tiffany decreased 3 percent to $2.1 billion. The company is facing weak demand at home and abroad, and will likely need heavy investment to re-energise its brand and business.

LVMH has a strong track record in re-invigorating heritage brands. After purchasing Bulgari for $5.2 billion in 2011, the company focused the product ranges and elevated the brand to focus on high-end jewellery. Over the last eight years, Bulgari has consistently gained market share. Sales have doubled and operating profit increased fivefold, according to HSBC.

“If LVMH achieves a Bulgari-like success in turning Tiffany around, this would further increase the pressure on Richemont,” Bernstein’s Solca said in a note. “This would add to competitive threats from mega-brands moving into jewellery from a couture and leather goods core: Chanel, Hermès, Louis Vuitton and Gucci to name a few.”

Perhaps the most transformative thing about the LVMH deal is the impact it will have on the wider market, ratcheting up pressure on other brands to look at mega-deals of their own in order to remain competitive. Targets big enough to move the needle remain few and far between, with the most obvious moves — like a tie up between Richemont and Kering or a deal to takeover Chanel or Hermes — hardly on the table.

“Every competitor will find it difficult to counter LVMH now but obviously Richemont will feel the most pressure,” said HSBC’s Rambourg.

LVMH will need time to digest this week’s megamerger, making another M&A-driven leap unlikely in the near term, but in a sector where size matters, the world’s largest luxury conglomerate seems set to only get larger.

Moët Hennessy took a majority stake in Château d’Esclans, maker of Garrus and Whispering Angel.

Bernard Arnault likes a certain shade of blue — and pale pink, too.

Capping off a week in which his luxury empire LVMH Moët Hennessy Louis Vuitton struck an agreement to buy Tiffany & Co. for $16.2 billion, its wines and spirits division took a majority stake in Château d’Esclans, producer of the prestige rosé wine Garrus and Whispering Angel, billed as the top-selling French rosé in the U.S.

The group said Sacha Lichine, president of Château d’Esclans, would continue to oversee the estate, while ceding 5 percent of his shares to Moët Hennessy, which also acquired the 50 percent stake held by Alix AM Pte Ltd., Lichine’s partner since 2008.

The transaction value was not disclosed.

Philippe Schaus, chief executive offer of Moët Hennessy, said Lichine “revolutionized the world of Provence rosé wine” when he acquired Château d’Esclans in 2006 and drove it upscale, producing high-end wines that established themselves as luxury products.

The original Château d’Esclans, set in the department of the Var, dates back to before the 12th century while the current château, resembling a Tuscan villa, was built in the mid-19th century. The estate stretches across 660 acres and the primary grapes grown on the property are of Grenache and Vermentino varieties.

LVMH also owns Château Cheval Blanc and Château d’Yquem, and counts 21 brands in its wines and spirits division — earlier this year revealing plans to buy its first rosé wine estate, the historic Château du Galoupet, that sits on the Riviera overlooking the Hyères Islands.

The luxury group has been bulking up its presence in the hospitality sector, buying luxury hotels group Belmond earlier this year — snagging high-end hotels like the Cipriani in Venice — and last week set an April opening date for its Cheval Blanc hotel in Central Paris, which will have restaurants, sweeping views of the Seine River and a spa operated by Dior, another LVMH-owned label.

How Weak Is the Industrial Economy? We’ll Know on Monday.

Figures on the industrial economy, in particular, come with higher stakes than normal. Stock prices in the sector have rallied even as macroeconomic data has wavered.

The Institute for Supply Management purchasing manager index, or PMI, is due to be released on Monday. It has come in below 50 for the past three months, indicating the industrial economy is shrinking. A figure above 50 would point to growth, but economists expect the index to come in at 49.2 for November, compared with 48.3 for October.

Four months of shrinkage might seem bad for industrial shares, but the sector is rallying. The Industrial Select Sector SPDR ETF (ticker: XLI) is up 10.4% since early October, following a sharp sell off catalyzed by a bad PMI number. The S&P 500 and Dow Jones Industrial Average are up 8.9% and 7.7%, respectively, over the same span.

The counterintuitive move can be explained—in part—by the fact the market is forward looking and the industrial data might be bottoming out. Investors often want to buy the most economically sensitive stocks before the figures improve so that they can ride the wave as more favorable news emerges.

“Events....have de-risked S&P Cyclical sectors,” wrote Barry Bannister, Stifel’s head of institutional equity strategy, in early October, after the selloff in industrial stocks. He recommended at the time that investors allocate more money to cyclical sectors—like industrials—arguing that all the bad news was reflected in current stock prices.

He still feels the same. “Although we see [better than] 5% further for the S&P 500 into 2020,” wrote Bannister last week, “we see twice that return, or plus 10%, for a long-cyclical/short defensive industry trade in the same period.” He’s saying investors should buy industrial stocks and pull back from defensive sectors, such as consumer staples.

The big danger he sees regarding his idea is bad news regarding the U.S.-China trade war. That has been a risk for the industrial economy for the entire year.

“Automotive-related manufacturing is definitely slowing in the U.S.,” the ISM PMI October survey report, released in early November, quoted one respondent as saying. “I think we are seeing the negative impacts of the tariff war with China and the unsigned [U.S.-Mexico-Canada] deal starting to hurt consumer confidence, especially on large purchases. Corporations are slowing orders/production accordingly.”

The comments on trade and tariffs will be worth watching when the November ISM report is released. So will any further signs of a turnaround in U.S. industrial demand.

Most important, investors can watch to see if the result comes in at 49.2 or better. If it does, as economists expect, it would mean things are getting better. That should be enough to keep industrial shares moving higher through the end of the year.

The report is based on a survey of 800 businesses. Manufacturers in 18 industries say whether things are getting better, worse, or staying the same in terms of things such as hiring, sales, orders, pricing, and inventories.

One business gets one vote. Results aren’t weighted by size, so a figure of 50 means equal numbers of respondents reported conditions had improved or worsened.

European Union has taken emergency action to boost olive-oil prices after market slump angered farmers in southern Europe

A prolonged slump in olive-oil prices is whipping up discontent among farmers in southern Europe and North Africa.

After growing steadily higher for several years, wholesale prices of extra-virgin olive oil—the purest kind, typically in demand from high-end restaurants—have fallen in 2019 by a quarter in Spain and by almost a third in Italy.

A rich olive harvest in Spain, the world’s dominant producer, has left the market flooded with olive oil. The glut comes just as demand is set to slow in the U.S., the biggest importer of the product, after President Trump in October imposed a 25% tariff on olive oil coming from Spain. The tariff was part of a package of levies designed to retaliate against the European Union for giving subsidies to plane-maker Airbus SE.

The decline in olive-oil prices has hit European farmers hard, prompting a protest in Madrid in October and leading the EU to take emergency measures to support the market for the first time since 2012. It has also eroded revenues at Deoleo SA, OLE -5.13% the Spanish bottling company behind olive-oil brands such as Bertolli and Carbonell.

“There’s a looming crisis in olive oil, not just in the States but around the world,” said Joseph R. Profaci, executive director of the North American Olive Oil Association. Improvements in cultivation methods over the past decade have enabled farmers to produce more from each piece of land, he said, “but demand is not keeping pace. The tariffs may come and go, but this is a systemic issue that really needs to be addressed.”

Olive oil has been made and traded around the Mediterranean for several thousand years, and the region still dominates production despite efforts to grow olives in the U.S., Argentina and elsewhere. Spain churned out a record 1.79 million metric tons of olive oil in the 2018-19 season, which ended in September—or 53% of all the oil made world-wide. Olive farms in the southern region of Andalusia are considerably larger and more advanced than the family-run groves that dot the hills of Puglia in Italy and the Peloponnese mountains in Greece.

The cost of 100 kilograms (221 pounds) of extra-virgin olive oil dropped to €213.50 ($235.42) in early November in the wholesale market in Spain. That is 24% cheaper than at the end of 2018, and 33% less than the average for this point in the season, according to EU data. In Italy, where olive oil tends to be more expensive, prices dropped 29% this year to €412 per 100 kilograms.

The new tariff hasn’t yet made olive oil more expensive in the U.S., Mr. Profaci said. However, he expects importers to start buying less oil in bottles and more in bulk, because the tariff applies to containers that weigh less than 18 kilograms.

This would be a blow to Spanish companies that have been promoting their brands in the U.S., said Teresa Pérez, director of the Interprofessional Spanish Olive Oil organization.

“There are no longer bad harvests,” said Hilari Jaime, a farmer who manages around 47 hectares of olive-tree fields in Canet lo Roig, a small village in eastern Spain. “There is a structural problem of overproduction and the market hasn’t swallowed it up.”

The U.S. tariffs are “a big problem for Spain,” said Ignacio Silva, chief executive of Deoleo, which saw a drop in third-quarter sales because of the falling olive-oil prices. His company will try to export more oil from Italy, Tunisia and Latin America to avoid the levy, Mr. Silva said.

Spain is expected to squeeze 30% less olive oil in the 2019-20 season, according to EU forecasters, but oil will remain plentiful because of a bounce in Italian production and a strong harvest in Tunisia.

Meanwhile, the outlook for demand has also darkened. The U.S. Department of Agriculture forecasts that U.S. imports will increase by just 0.3% this season to 356,000 tons, compared with 10% growth in the previous season.

To ease the financial strain on producers, Brussels has invited them to bid for compensation for the cost of storage. Any oil that the EU pays to store will be taken off the market for at least 180 days, reducing available supplies.

Anna Cane, president of Italy’s Assitol Olive Oil Group industry association, said the aid could bolster prices temporarily. But the EU’s help is “an emergency tool, not a structural measure,” she said.

Still, in the long run, there are reasons for olive-oil makers to be optimistic, said Vito Martielli of Rabobank, a major lender to the agri-food industry. The average American consumes one kilogram of olive oil a year, compared with 10 kilos in Italy and Spain, leaving plenty of room for further growth.

At the same time, Rabobank’s Mr. Martielli said, low prices create an opportunity to flog European olive oil in untapped markets such as India.

In the age of Big Data, Tesla’s stated approach to market research—ignoring it altogether—seems especially reckless

The show began Nov. 21 in Los Angeles with smoke, lasers and leaping plumes of fire. Then a futuristic new electric truck rolled onstage; a fever dream of sharp angles, flat steel panels and supervillain aesthetics.

“Doesn’t look like anything else,” said Tesla Chief Executive Elon Musk, who dressed in black for the occasion.

The highlight of the whole nutty spectacle came a few minutes later when the company’s design chief hurled a steel ball at the truck’s windows to show how sturdy they were. They promptly shattered. “Oh my f—ing God,” Mr. Musk said.

Shares in Tesla fell 6.1% the following day.

It’s possible that none of this will matter when the Cybertruck goes on sale to the public, assuming it does. Mr. Musk has posted tweets suggesting that orders are pouring in, and that critics of the truck’s design are just suffering from a lack of imagination. “Nobody *expects* the Cybertruck,” he wrote.

Here’s what we do know: the most audacious thing about this vehicle isn’t the styling—it’s the way it was conceived, designed and launched. This isn’t the kind of calculated strategic move you’d expect from a $60 billion public company. It’s basically a gut hunch—a wild bet.

On Nov. 5, two weeks before the Cybertruck’s debut, Mr. Musk discussed the project in a little-noticed interview at a U.S. Air Force tech event in San Francisco. He also described Tesla’s approach to market research.

“I do zero market research whatsoever,” he said.

Let that sink in for a moment. Before introducing a completely new product aimed at cracking the truck market, the most hotly competitive and historically profitable segment of the U.S. auto industry, Tesla’s CEO said he did not deem it necessary to consult potential customers.

Ignoring market research would be a tough strategy to defend in any industrial era, but it seems especially reckless in the age of Big Data. Amazon, Apple, Google and Facebook, among others, have become behemoths by harvesting and analyzing mountains of customer data. They don’t make bets. Before making operational changes, they run experiments to determine the outcome.

In a forthcoming book, “The Power of Experiments: Decision-Making in a Data-Driven World,” Harvard professors Michael Luca and Max Bazerman show how such experiments have helped organizations from eBay to the U.K. tax authority make better decisions. By testing different strategies on a limited pool of unwitting customers before implementing them, they say, companies can eliminate guesswork and intuition and build products and processes “that better account for the many quirks of human behavior.”

Companies that manufacture things don’t always have the same luxury, of course. Tesla can’t be expected to mass-produce 10 different trucks to see which one the public prefers. But here’s the thing: Most Earthlings now carry devices in their pockets that record everything they think and do. And if that data can’t help you determine what kind of truck customers want, you can always just reach out and ask them. Companies get scores of ideas from social media, crowdsourcing platforms and online suggestion boxes.

Elon Musk’s resistance to customer research is unusual for a technology CEO, but his attitude toward management is not. Many Silicon Valley “superheroes” who’ve led companies they founded have become devoted believers in their own brilliant instincts.

“A lot of times people try to make products that they think others would love but they don’t love them themselves,” Mr. Musk said at the Nov. 5 tech event. Tesla’s approach is to start by imagining the “platonic ideal” of a car. “I find that if you do that, people will want to buy it,” he said. “If it’s compelling to you it will be compelling to others.”

As a newcomer to the truck market, where customers are often fiercely brand loyal, Tesla has every incentive to create a distinctive product that appeals to new buyers. And if the impressive specifications Mr. Musk quoted for the Cybertruck’s ground clearance, towing capacity, acceleration and entry-level price ($39,900) survive to production, styling may be less of a concern.

At the Nov. 5 event, Mr. Musk said Tesla’s new rig was designed to turn heads on the street. He described it as “an armored personnel carrier from the future.” The risk, of course, is that some people will decline to buy it for precisely the same reason. Wouldn’t it make sense to ask them?

If there’s one broad leadership lesson in this, it involves how, in the future, successful executives should allocate their time.

There’s an old saying, often attributed to Albert Einstein, that if you had an hour to solve a problem and your life depended on the outcome, you ought to spend 55 minutes thinking about the problem and five minutes implementing the solution.

In the past, most CEOs did the opposite. They cycled through product ideas to find one they were comfortable betting the farm on, then spent the majority of their time getting it built. But as data experiments become more accessible, the Einstein strategy makes more sense. If the market’s response to any solution is knowable, a leader’s emphasis needs to shift to identifying the right problem.

Some of the world’s largest companies have been animated by one compelling problem looking for an answer. If you think about it, Amazon’s entire business model was formed around a question: Shouldn’t people be able to buy anything, at any time, without leaving the house?

In his recent book “Loonshots,” Safi Bachcall tells the story of Edwin Land, the founder and former CEO of Polaroid, who is best known as the father of the instant camera. The idea came to him in 1943 as a simple question from his young daughter. After Mr. Land snapped few photos of her one day, she asked him: “Why can’t I see them now?”

Tesla was also formed around an excellent problem: Shouldn’t somebody build zero-emissions vehicles that everybody wants to drive?

If the company had stuck to that goal, it would almost certainly have conducted mountains of customer research. But somewhere along the way, I suspect, Mr. Musk and his team got sidetracked. They shifted their focus to a problem that might not be a problem outside their conference rooms. “Trucks have been the same for a very long time, like 100 years,” Mr. Musk said at the unveiling. “We wanted to try something different.”

I can’t blame Mr. Musk for wanting to be a unicorn, or thinking he is one, or even for preferring to build things that reflect his own tastes, rather than some crowdsourced consensus. History has, at times, produced genuine business visionaries whose all-in bets have changed the world. Apple’s Steve Jobs probably comes to mind.

In less than a decade, however, circumstances have changed. The volume of incoming customer data, combined with advancements in artificial intelligence and machine learning are helping businesses decode human behavior at a level that humans could never see.

Put simply, today’s geniuses study problems. Only suckers make bets.

— Mr. Walker, a former Wall Street Journal reporter and editor, is the author of “The Captain Class: A New Theory of Leadership” (Random House).

Andrew Pearse said he negotiated his first bribe while sipping vodka at a hotel in Maputo, the capital of Mozambique, in February 2013.

His employer, Credit Suisse Group AG CS -1.50% , was financing a $370 million coastal security contract between Mozambique and Privinvest Group, a shipbuilder owned by Lebanese billionaire Iskandar Safa.

Poolside after deal meetings, Mr. Pearse said he and a Safa lieutenant struck an agreement for Mr. Pearse to receive millions in cash. In exchange, Privinvest would pay a lower fee on Credit Suisse’s loan for the Mozambique security contract.

Mr. Pearse, 50 years old, needed the money. He was having an affair with a colleague and wanted to leave Credit Suisse and start a financial boutique with her.

Soon, according to Mr. Pearse, Privinvest was backing his boutique firm and paying him to get Credit Suisse to lend even more to the Mozambique projects, which expanded beyond maritime security surveillance systems to include fishing boats and a shipyard. His life became a whirl of clandestine meetings, secret bank accounts and exotic travel.

It all came to an end in January with Mr. Pearse’s arrest in London. In July, Mr. Pearse pleaded guilty in Brooklyn federal court to wire fraud, saying he conspired to defraud investors in the Mozambique deals. His former lover, Detelina Subeva, and another former Credit Suisse colleague, Surjan Singh, both pleaded guilty to laundering illicit funds.

Mr. Pearse told the court this fall that ambition and love drove him to take $45 million from Mr. Safa’s Abu Dhabi-based company. In October, Mr. Pearse was the star government witness in the trial of a Safa lieutenant, Jean Boustani, whom the U.S. Justice Department has accused of fraud and money laundering in $2 billion of debt deals in Mozambique. A verdict in Mr. Boustani’s trial could come as soon as Monday.

Mr. Boustani has denied paying bribes and disputed Mr. Pearse’s account of the payments. He said Privinvest backed Mr. Pearse’s boutique investment firm and paid him a share of revenue.

A Privinvest spokesman said that no bribes were paid and Privinvest is proud of its work in Mozambique.

Lawyers for Mr. Pearse, Ms. Subeva and Mr. Boustani declined to comment, and a lawyer for Mr. Singh didn’t respond to requests for comment.

The trial came at a sensitive time for Credit Suisse, which drew fire in September for hiring investigators to spy on a banker who left for a competitor. That episode and the Mozambique deals added to questions about the bank’s oversight following client tax-evasion scandals and regulatory failings in recent years. The Swiss bank arranged financing for two of the three Privinvest projects that ultimately defaulted on their debts.

Mr. Pearse, in his testimony, said he was able to manipulate the bank’s controls and claimed other senior bankers had side deals with clients.

Credit Suisse says it is a victim of rogue employees in the Mozambique deals and is cooperating with authorities. Chief Executive Tidjane Thiam has sought to repair the bank’s reputation by starting an ethical investing division and a campaign to ensure all debts are disclosed when countries borrow.

New Zealand-born Mr. Pearse joined Credit Suisse in 2000. The bank was pouring money into emerging markets, and Mr. Pearse rode the wave to head a group making loans to foreign companies and governments.

His team included Ms. Subeva, a Princeton graduate from Bulgaria, and Mr. Singh, a longtime friend.

By 2012, Mr. Pearse was looking to leave investment banking and spend more time with Ms. Subeva, who, like him, was married with a young family. Mr. Pearse’s search for funding grew more urgent after colleagues spotted the two canoodling in a restaurant, according to his court testimony and a person familiar with the matter.

By that September, Mr. Pearse glimpsed a route out. He worked with Mr. Boustani on the $370 million loan for Privinvest’s security contract, and he said they bonded.

Early the next year, Mr. Pearse pitched a boutique that would help Privinvest finance similar projects. In Maputo, he said he told Mr. Boustani that the $49 million financing fee that Privinvest was paying could be lowered. His aim was to “curry favor” with Messrs. Boustani and Safa so they would invest in his new company, Mr. Pearse later told the court.

Over a bottle of vodka at the Radisson Blu hotel, Messrs. Boustani and Pearse agreed Privinvest would pay Mr. Pearse $5.5 million in exchange for an $11 million reduction in the fee, Mr. Pearse recounted in court. “I remember it very clearly because it was a significant point in my life where it was the first time I’d been offered a kickback,” Mr. Pearse said.

Mr. Boustani in testimony said Privinvest made payments to Mr. Pearse to start his new business.

A few weeks later, at Mr. Safa’s compound in the south of France, Mr. Safa agreed to back Mr. Pearse’s startup and pay it fees for additional loans, according to Mr. Pearse’s testimony.

Mr. Pearse left Credit Suisse, but told Mr. Singh, who remained, that he could earn a few million dollars by pushing Credit Suisse to make more loans, according to testimony from both men. Mr. Singh told the court he was “ashamed to say” he criminally received $5.7 million.

Messrs. Pearse and Singh set up bank accounts to receive the payments in Abu Dhabi, where Mr. Boustani helped obtain residency documents. Mr. Pearse posed as a tube welder. Mr. Singh posed as an archives clerk, stripping off his jacket and tie in a visa-processing center filled with laborers so he would “fit in more,” he told the court.

Mr. Boustani said in court testimony the visas the two men received were to work at the investment boutique, and the job titles came from Privinvest visa quotas.

Mr. Pearse’s new firm thrived, and he and Ms. Subeva traveled together for work and pleasure, including to Bali, the Seychelles and Montego Bay in Jamaica. He started an energy business buying oil rights, and hired a former professional rugby player from New Zealand to coach his son’s high school team in southeast England.

By 2015, the Mozambique projects were failing amid an oil rout and were at risk of defaulting on their debts, which Credit Suisse and other banks had sold to investors around the world.

When Credit Suisse decided to stop lending, Mr. Boustani threatened to write to Mr. Singh on his bank email to demand the return of $3.7 million Privinvest had paid him, Mr. Singh said in court. He said he refused. Mr. Pearse took him on a trip to Paris to create a cover story for payments Privinvest and Mr. Pearse had made to him, Mr. Singh testified.

On the Eurostar train, they tapped out a document describing fees for fictitious investments that Mr. Boustani was supposed to have made for Mr. Singh.

Mr. Boustani testified in court that the actual Privinvest payment was to recruit Mr. Singh to Mr. Pearse’s boutique. Mr. Pearse said he paid Mr. Singh $2 million for getting Credit Suisse to continue the financing.

In 2016, Mozambique restructured some debts and The Wall Street Journal reported on irregularities in the deal, prompting international donors to halt aid and triggering an economic contraction in the impoverished country.

U.S. firms holding the debt began selling out as prices fell. Mutual-fund manager AllianceBernstein took a loss of about $22 million, according to court testimony.

U.S. and U.K. authorities investigated. They got a breakthrough when Credit Suisse found personal email addresses of some alleged conspirators in deal correspondence. The DOJ issued warrants to get the messages from email providers at the end of 2017, and over the next year developed a case alleging that $200 million out of Mozambique’s $2 billion in borrowings went to bankers and Mozambican officials.

Mr. Pearse and Ms. Subeva’s on-and-off affair cooled, but they kept working together. On Dec. 31, 2018, they texted New Year’s greetings.

A few days later, they were arrested in London. Both face up to 20 years in prison.

The bears are circling retailers ahead of the holiday season.

Short sellers have revived their bets against bricks-and-mortar retailers in recent weeks, taking their most aggressive positions in months. Short positions against the SPDR S&P Retail fund, one of the biggest retail exchange-traded funds, last week hit 441% of the fund’s available shares, due to multiple borrowings by bearish speculators, according to financial-data firm S3 Partners.

That was twice the percentage of shares investors shorted at the same time last year and the highest level in roughly eight months.

Short sellers—who have wagered $7.7 billion against retailers including Macy’s Inc., M -1.03% Kohl’s Corp. KSS -2.71% and Nordstrom Inc. JWN -0.39% —borrow shares and sell them, expecting to repurchase them at lower prices and collect the difference as profit. Mall owners are also being targeted, with billionaire investor Carl Icahn among their biggest detractors in recent months.

Despite expectations for a solid holiday shopping season, several investors said their bearish bets are based on retailers’ struggles in a highly competitive landscape and consumers’ growing preference for digital shopping. And investors say they will closely watch the results from Dollar General Corp. , Big Lots Inc. and Lululemon Athletica Inc., which are due to report results this week.

The wagers against retailers stand in contrast to investors’ more bullish take on the stock market. Bets against the SPDR S&P 500 Trust, the biggest ETF tracking the broad index, stand at just 15% of available shares, near the lowest levels of the year, according to S3. The S&P 500 has surged 25% this year.

“Everyone talks about the holiday season and how retailers are doing better,” said Seth Golden, a 43-year-old consultant for the consumer-packaged goods industry in Ocala, Fla. “But retailers are fighting an uphill battle. It doesn’t matter what many of them do at this point. Their structure is a storefront, which is only decreasing year after year.”

Mr. Golden, who also runs a trading website that issues alerts on trades he completes to 3,000 members, said he has been shorting shares of Kohl’s for most of the year. The trade got a big boost last month after the department-store chain reported lower-than-expected sales and cut its profit forecast for the year, sending shares down nearly 20% on Nov. 19. That was the stock’s largest-ever single-day decline and helped extend its pullback for the year to 27%.

Mr. Golden isn’t finished with the trade. “I don’t see growth,” he added. “I see only further share-price deterioration.”

Kohl’s is the second-most profitable retail short this year. S3 estimates that short sellers have netted $556.5 million on the stock this year. Macy’s tops the list, giving investors who had bet against the stock a cumulative payday of $597.1 million.

The retail short trade has been popular in recent years as shares of department stores and specialty retailers have withered under the shadow of Amazon.com Inc. Macy’s shares have lost 76% of their value over the past five years. And some investors have bet shares will fall further after disappointing earnings reports over the past two quarters.

Short positions against the department-store operator have jumped to 31% of its total share count, significantly higher than the 13% of shares that were held short in early August, according to S3.

Macy’s representatives didn’t respond to a request for comment. A Kohl’s spokeswoman declined to address the company’s short sellers.

Despite the big paydays generated by a handful of stocks, retail hasn’t been a uniform trade for investors this year. Several short sellers described a tougher environment for picking shorts. Some shorts have gone the wrong way, saddling investors with massive losses, while others, such as Macy’s, appear so beaten down that some investors say there may be little upside left for bears.

Target Corp. , for example, has defied most expectations, rising 89% in 2019 after four consecutive years of single-digit gains and losses. Unlike many of its rivals, Target has continued to attract more shoppers, and the company reported last month its 10th consecutive quarter of rising sales.

Short sellers have hemorrhaged $1.3 billion on Target this year, forcing many out of the trade altogether. Discount retailers, such as Dollar General Corp. and TJX Co s., have also been resilient.

Even struggling retailers have had periods of strength, forcing short sellers to cover their positions. Shares of Nordstrom have struggled for most of the year. But some investors had to scramble to cover their positions on Nov. 22 after the stock rose nearly 11% on stronger-than-expected earnings.

Short bets have crept higher since then, with positions standing at 29% of Nordstrom’s share count.

“There was a tremendous amount of carnage in this area 18 months ago,” said Brad Lamensdorf, portfolio manager for AdvisorShares Ranger Equity Bear ETF. “Since then, it’s been bifurcated.”

Mr. Lamensdorf, who had shorted retailers including Macy’s in the past, said he has avoided traditional retailers in recent months. Instead, he has been shorting mall operator Macerich Co. , which has been hurting from the raft of bankruptcies of mall-based stores. The latest bankruptcy, Forever 21 Inc., is expected to dent Macerich’s annual earnings, the mall operator warned in late October.

Macerich shares are down 38% this year.

Carl Icahn has also been wagering against mall owners in recent months. The billionaire investor stands to gain $400 million or more if mall owners run into problems servicing their debt.

Besides that, retail shorts have been costly, contributing to why investors such as Mr. Lamensdorf have looked past the traditional trades. Crowded shorts tend to carry higher borrowing costs for short sellers. Also, several retailers pay rich dividends, forcing short sellers to pass that back to their share lender. Macy’s has a 9.8% dividend yield, while Kohl’s stands at 5.6%.

“Macy’s may go lower, but having to pay that dividend yield right now can be painful,” Mr. Lamensdorf said.

Other retail bears remain undeterred.

Michael Rooks, a 31-year-old director of digital media in Virginia Beach, Va., who invests on the side, has been shorting shares of Target, Lululemon Athletica Inc. and Ulta Beauty Inc. on a day-to-day basis, never holding a position past the market’s 4 p.m. close.

He says he has made money off his Lululemon and Ulta shorts but admits Target has been tougher.

“The bears have been squeezed to the damn bone,” Mr. Rooks said. “But I’ve been focusing on little windows.”