Every now and then I like to take a look to see what businesses on the local S&P/ ASX200 Index (ASX: XJO) traders are betting will fall in share price over the weeks or months ahead.
On a daily basis the corporate regulator ASIC releases data on the percentage of shares short sold in a company and if one has more than 5% to 10% of its shares sold short that suggests some analysts are expecting falls ahead.
So let’s take a look at five heavily short sold shares and consider why this may be. All data accurate as at 15 January according to ASIC.
Amcor Limited (ASX: AMC) has 7.6% of its shares shorted and the packaging giant is a new entry on this list. Amcor is partly reliant on emerging market growth and traders may be betting a slowdown in China could take down demand for Amcor’s packaging services.
ARB Corporation Limited (ASX: ARB) is the founder-led 4-wheel drive car parts supplier that has 5.4% of its shares shorted. This is not a huge amount, but still suggests some investors think yesterday’s closing price of $15.99 is too high. The company has an excellent track record of growth and zero net debt. The valuation is moderately high, but it’s a bold move betting against this consistent performer.
Commonwealth Bank of Australia (ASX: CBA) I thought worth including as despite a lot of the business media chatter about it being heavily shorted it only has 2.19% of its outstanding scrip shorted according to ASIC. Although 2.19% is not much, by volume (more than $2 billion) it is still probably the most heavily shorted business on the ASX right now given CBA’s $130 billion valuation.
Bank of Queensland Limited (ASX: BOQ) is the regional lender that is probably being shorted for the same reasons as CBA. Namely the potential for house prices to weaken and costs to rise as a result of the fallout from the Hayne Royal Commission into financial services. It has 6.3% of its shares shorted.
BHP Group Ltd (ASX: BHP) has 5.7% of its shares shorted, which is a contrarian call given the recent strength in iron ore prices to about US$75 per tonne.
Speculators might be betting that the BHP share price is set to slide now it is without the rights to the A$1.40 per share special dividend that might have attracted extra buyers. However, short sellers who borrowed through the ex-dividend period will generally be on the hook for the dividend as well, which means betting against BHP’s valuation is a risky game given the unknown direction of commodity prices.
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You can find Tom on Twitter @tommyr345
The Motley Fool Australia has recommended ARB Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.