Monitoring short positions can be beneficial for retail investors as an indicator on the health of a company, or potential buying opportunity.
Cineworld, which is the UK's most-shorted company, with 7.5% of its stock out on loan to six investment firms, fell 4% in the FTSE 250 index and has skidded 25% over the past fortnight as re-opening optimism is dented by rising Covid-19 numbers in the UK and United States.
Two other heavily-shorted stocks in Hammerson and Network International (LSE:NETW) also took a beating, but the hedge funds didn't have the session all their own way as their short positions in Tullow Oil now look less attractive after the production firm's 5% improvement.
The list of the UK's 10 most-shorted companies, according to exchange-traded product firm GraniteShares, is made up by Sainsbury's (LSE:SBRY) (6.9%), Petropavlovsk (LSE:POG) (6.2%), Domino's Pizza (LSE:DOM) (4.8%), Metro Bank (LSE:MTRO), Ultra Electronics (LSE:ULE) and Wood Group (LSE:WG.) (all with 3.6%).
Morrisons (LSE:MRW) had been among them, but the short positions of hedge funds unwound in spectacular fashion after the supermarket group became the subject of a bidding war.
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Short-selling is where an investor borrows a stock and then sells it on the market in the belief that it can be bought back at a much lower price later on. Monitoring these short positions can be beneficial for retail investors as an indicator on the health of a company, or as a potential buying opportunity if they think the view of funds is overly pessimistic.
Retail investors recently got together in the US to squeeze the short sellers by sending the valuations of GameStop and other heavily shorted stocks sharply higher.
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The high degree of uncertainty over the Covid-19 recovery continues to provide an attractive environment for the shorting of certain stocks in the UK, including shopping centre owner Hammerson as 5.8% is currently out on loan among five funds. Its share price today fell 2% to continue the weakness seen over the past month.
TUI AG (LSE:TUI) was the biggest faller across the FTSE 250 index, falling 6% amid fears that international travel restrictions may not be relaxed in time to make much difference for this summer. Wizz Air Holdings (LSE:WIZZ) and easyJet (LSE:EZJ) were 3% cheaper and airport caterer SSP Group (LSE:SSPG) fell back 5%, partly in response to the decision of chief executive Simon Smith to leave the group later this year.
The latest decline for Cineworld came a day after Peel Hunt analyst Ivor Jones said he needed to see more evidence the business has stabilised before introducing a “buy” recommendation.
Jones lowered his price target to 75p and said trading will only be properly back on its feet once the film release schedule has returned to normal. He added: “Offsetting that is a risk that Covid-19 flares-up at just the wrong time and US cinemas, once again, have to close their doors.”
Cineworld shares were 3.5p lower at 64.74p today.
Moving in the opposite direction was Tullow Oil (LSE:TLW), up 5% or 2.4p to 53.6p after chief executive Rahul Dhir said the Africa-focused company had made “excellent” progress in the first half of the year.
His strategic focus on lowering the cost base, improving operational performance and reducing debt has been aided by a rising oil price and sale of interests in Uganda, Equatorial Guinea and the Dussafu Marin permit in Gabon to raise over $700 million (£497 million).
Tullow's AGM update today noted that oil prices of around $60 a barrel for the remainder of the year would lead to full year operating cashflow of around $600 million (£433 million). But if oil averages $70 a barrel, this figure increases by about $50 million (£36.1 million).
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