Short sellers in the U.K. have been actively trimming some of their exposure over the last month with $4.42 billion worth of short covering executed over the last month. Total equity short interest in the U.K. market is now $35.00 billion, a decrease of -$2.73 billion from short balances at the end of 2019. U.K. equity short covering was robust for the first three quarters of the previous month, with $4.61 billion of buy-to-covers hitting the tape, but short sellers took a breather over the last week and actually shorted $189 million of new stock. Overall, U.K. shorted stock had an average Short Interest % of Float of 6.72% and an average borrow fee of 0.57%.
Flutter Entertainment sits atop the U.K. most shorted league table with large cap perennial market hedges Vodafone and HSBC taking up the second and third spots, respectively.
Worldwide short selling activity has been just as volatile as the underlying markets and we’ve seen short sellers seesawing between selling and covering in individual names and sectors on a weekly basis. With market volatility at record levels, the notion of “long term” trading has shrunk from years to weeks\months and the we have seen the behavior of short sellers change quickly as news hits the headlines.
By looking at the trend of short selling and short covering we can compare the conviction of short sellers in individual stocks. We are breaking down short selling activity over the last month into “long term” (3 weeks of short side activity between 3/25 & 4/15) and “short term” (1 week of short side activity between 4/16 and 4/22).
Continued long term and short term short selling confirms the bearish conviction of short sellers while continued long term and short term short covering confirms the lack of bearish conviction of short sellers. Stocks which flip flop between shorting and covering between the long and short term indicate a change in the short sellers’ conviction and can provide an early glimpse into a change in price action for a stock.
Stocks with continued short conviction throughout the last month are led by Wm Morrison Supermarkets (MRW LN) as shorts increased their selling activity five fold over the last week comparted to their “long term” short selling activity. Heavy short selling activity continued in EasyJet (EZJ LN) and Halma (HLMA LN) while short selling in Compass Group (CPG LN) is continuing but has weakened over the last week.
U.K. stocks that had a strong about-face in short selling were Rolls-Royce (RR/ LN) and Royal Dutch Shell B (RDSB LN) with $785 million of short selling in the “long term” offset by $425 million worth of short covering over the “short term”. Short sellers in Old Mutual (OMU LN) reversed field and covered twice as much in the “short term” as they shorted in the “long term”. Legal & General (LGEN LN) may be seeing its significant amount of recent short selling, +$141 million in the “long term”, sputtering to a halt with $10 million of short covering in the “short term”. LGEN’s short activity needs to be monitored to see if short sellers are merely trimming and adjusting their existing short exposure or actively closing out their entire book.
There are several U.K. stocks where short sellers have been bidding up stock prices throughout the entire month. “Long term” and “short term” short covering in HSBC (HSBA LN), AstraZeneca (AZN US), Smith & Nephew (SN/ LN) and Prudential (PRU LN) is continuing in size, as short sellers are showing strong bearish conviction in these names. Short selling in Intertek Grp (ITRK LN) is ramping up, with 88% of short selling over the last month occurring last week. Shorts are losing steam in Reckitt Benckiser (RB/ LN) as $148 million of short selling in the “long term” has been followed up with just $32 million in in the “short term”.
Finally, we are seeing “long term” short covering switching to “short term” short selling in many of the large cap beta hedging stocks. Material short selling in Barclays (BARC LN), Unilever (ULVR LN), Standard Chartered (STAN LN), Diageo (DGE LN) and National Grid (NG/ LN) is probably a mixture of incremental portfolio hedging and Alpha plays.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index or country-wide basis allowing investors\traders to better manage their existing long and short positions as well as generate new trade ideas.
Want deeper insight into the above analysis?
Managing Director Predictive Analytics, S3 Partners, LLC
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