Wondering which stocks the short-sellers are currently targeting on Australia’s ASX 200? This great chart, supplied by Morgan Stanley Australia’s Chris Nicol, Daniel Blake, Antony Conte and Steven Ye, reveals the answer.
It shows the top 10 most-shorted Australian stocks on the ASX 200 as a percentage of their total market capitalisation as of Tuesday, June 23.
Short selling is the sale of a share that is not owned, or is borrowed, by an investor.
Flight Centre, having issued a profit warning yesterday, now holds the title as “the most shorted stock” on the index with close to 25% of its free float market cap currently short-sold by investors. Fortescue Metals group, despite a net reduction in short positions from three months ago, remains the second most-shorted stock amongst investors.
While there are some familiar names on the list, usually corresponding with recent share price weakness, it is interesting to note that short-sellers have scaled back their bets for future price declines in the banks following a recent bout of weakness.
The chart below shows the ASX 200 banks index in blue against short interest in the banks, in red. While short interest in banks rose towards the end of 2014, the levels of shorts has been scaled back following recent declines in banking stocks of around 20%.
Despite the scaling back of shorts in the banks, Morgan’s believes they will continue to underperform the broader ASX 200 index.
“The level of short interest in banks, while high at the start of the year, is now below the five-year average.The bank bears have yet to come back after covering their short positions post the rate-cut rally in February. With positioning not all that negative, we see potential for further underperformance as structural headwinds weigh on profitability.
We remain underweight this sector as capital regulation and a trough in loan losses reduce forward ROE and EPS growth profile. Short interest among big four banks are low by historical standards, with the most shorts in WBC, followed by ANZ and CBA.”