Kylin Management has increased its position in NQ Mobile Inc (ADR) (NYSE:NQ), giving it a 6.2% stake in the company, according to a recent 13G filing. Kylin already had a small stake in the company, but is now clearly taking a bullish position, increasing from 346,500 to 9,569,980 common shares with 7,190,370 shares in its Offshore Fund and another 2,375,610 shares in separately managed accounts.

NQ Mobile

Muddy Waters continues to push short argument

Carson Block’s Muddy Waters has taken a short position on NQ Mobile Inc (ADR) (NYSE:NQ), arguing that the company’s revenues are being over-reported. Block first released a detailed report explaining his short thesis in October last year, causing NQ Mobile’s stock to drop sharply, but the company responded by bringing in PricewaterhouseCoopers to re-audit their books.

Block has continued to press his argument, offering to pay for an independent auditor to take yet another look at NQ Mobile’s books, but the stock’s price has stabilized and started to rise again. Muddy Waters released a fresh round of allegations last week, but at this point the market is well aware of Block’s opinion of the company (he’s predicted that it will eventually be delisted) and most people who follow the stock have made up their mind one way or the other.

While it hasn’t reached its previous high (it was trading at $25.9), at $16.1 NQ Mobile Inc (ADR) (NYSE:NQ)s stock is well above the $8.8 low that it his when investors were still trying to work through Block’s argument and decide if they thought the company’s security revenues really were “fictitious”.

Kylin’s purchase could improve confidence in NQ Mobile

For Kylin to increase its stake now, and by such a substantial amount, should give other investors more confidence that the company is doing fine. Longbow Securities has already pulled a quick profit on the stock, essentially betting that the market had overreacted to Block’s allegations, and now Kylin Management seems to be making a similar bet.

While Block has made his name as a short seller, this wouldn’t be the first time that markets move against him. He went after American Tower Corp (NYSE:AMT) over the summer, but the stock recovered after the initial controversy boiled over. If the same thing happens with NQ Mobile Inc (ADR) (NYSE:NQ), anyone putting money on the stock now could see substantial returns as the stock rises back toward $20.