Much has been made this week of the FSA’s introduction of a regularly updated list of the most shorted stocks in the UK – and who is shorting them. Brought in as part of the EU’s new disclosure regime for short selling, it’s the sort of list that offers journalists in particular an almost endless pot of feature ideas.
Unsurprisingly, there has been no shortage of venom directed at the ‘ruthless’ hedge fund traders behind these shorts, and the chaos they can cause. That’s one way to see it - although as James Montier has argued: "Vilifying short sellers is the equivalent of punishing the detective rather than the criminal."
Under the new rules, investors holding short positions worth more than 0.2% of a company’s share capital have to tell the regulator. When the position exceeds 0.5% of the shares, then the details are made public. While this sort of disclosure may add more transparency to these sorts of trades, the usefulness of the list is still limited by its opacity. For instance, the list doesn’t easily distinguish between when short positions are opened, closed or changed. Inevitably it also only tells one side of the story; institutions can hold long and short positions simultaneously – so this list might not give an accurate view of what each money manager really thinks. Be that as it may, what does emerge is a general view of the types of companies and sectors that professional traders think are heading for trouble – and retailers really stick out.
In a fragile economy where consumers are still struggling, it seems that short sellers think Christmas will bring only disappointment to some of the biggest names on the High Street. Among them, Home Retail (LON:HOME) (the owner of Argos and Homebase) and Mothercare (LON:MTC), the children’s merchandise retailer, are notable. Both are currently attempting major reorganisations in the face of changing markets and stiff competition. In response, both have seen their share prices rise in recent months. So could the shorters have got it wrong?
The recent experience of electronics chain Comet proves that failure to adapt to changing consumer habits can be fatal. At Home Retail, whose Argos website is the second most visited internet retailer in the UK (after…