China's tech stocks are tumbling, but short sellers have a different sector in their sights

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It's not just China's tech sector that's struggling right now — and short sellers are cashing in.

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. Short-sellers profit when stocks fall.

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 most-shorted stock, China Overseas Land & Investment , is also popular.

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