Short-selling in Australian banks is on the rise

PIERRE-PHILIPPE MARCOU/AFP/Getty Images
  • Short-selling in Australian banking stocks increased in the March quarter.
  • Total short interest in the majors rose from $3.8 billion to $6 billion, according to analysis from Macquarie Bank.
  • Westpac Bank is now the most shorted of the major banks.

Short-selling in Australian banking stocks increased in the March quarter, according to analysis from Macquarie Bank, coinciding with the start of Australia’s Financial Services Royal Commission and a spike in short-dated funding costs.

“Investors growing concerns from the Royal Commission and rising funding costs have resulted in increasing short interest across the sector, rising from 0.7% to 1.4%, or $3.8 billion to $6.0 billion,” Macquarie says.

As seen in the chart below from Macquarie, short interest in the majors is currently above average of around 0.9% seen over the past five years.

Source: Macquarie Bank

By individual stock, Macquarie says Westpac is now the most shorted of the major banks with short interest increasing by approximately $700 million, or around 0.9%, over the quarter to 1.8%.

Short interest in ANZ and the Commonwealth Bank also lifted, rising 0.8% and 0.3% respectively to 1.5% apiece.

While short interest is increasing, Macquarie is taking a different view to the short-sellers, maintaining an overweight rating on the banking sector.

“While we accept that, on balance, the Royal Commission fleshed out more issues than we expected, we believe that risks are increasingly being captured is sector’s current valuations and we maintain our overweight recommendation on the sector, albeit noting the absence of a visible near-term catalyst for the sector to re-rate,” it says.

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