Short-sellers stepping up their attack on these ASX stocks this month

The market may be buoyant but short-sellers aren't retreating to the sidelines as this group of traders are increasing their bearish bets against a number of ASX stocks.

The market may be buoyant but short-sellers aren't retreating to the sidelines as this group of traders are increasing their bearish bets against a number of ASX stocks.

Never mind that the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index has recovered from the recent sell-off and is up 0.2% for the month.

Short-sellers believe these large cap stocks are poised to underperform and they have shorted more of their shares since the start of March.

Short-sellers are those who borrow stock to sell on-market in the hope of buying it back at a lower price later to profit from the difference.

These traders tend to be more sophisticated than the average investor and it can pay to keep an eye on what they are up to.

a woman

Hottest short-selling favourite

The stock that saw the biggest increase in short-interest (the amount of its shares being short-sold) is fund manager Perpetual Limited (ASX: PPT).

According to the latest ASIC data, short-interest in Perpetual's shares have surged a whopping 5.6 percentage points this month to 10.2% of Perpetual's total shares on issue (as of 25 March as ASIC's data is always a week behind).

The Australian Financial Review is speculating that Regal Funds Management is behind the big surge in short-interest as the hedge fund is betting that the recent spike in PPT's share price will unwind as it was caused by a passive Exchange Traded Fund (ETF) manager buying the stock.

Lawsuits and poor results

Meanwhile, herbicide and seed company Nufarm Limited (ASX: NUF) is a close second with the amount of its shares falling into the hands of short-sellers surging 5.4 percentage points to 13.1% over the month to the past Monday.

The second US court ruling against a popular weedkiller, Roundup, which is made by Nufarm's rival Bayer, is probably part of the reason. Nufarm also uses the same active chemical in its products, which two US juries (separate cases) believe to be carcinogenic.

But Nufarm also issued a disappointing profit result this month and that may be the bigger reason why the stock has become a short-seller's soup du jour!

Cracks in construction

It also looks like short-sellers are stepping up their attack against building materials supplier CSR Limited (ASX: CSR) as the stock is third on the list with a 3.7 percentage point increase in short-interest to 9.2%.

More pessimistic news on the home construction market is probably driving the latest pick-up in short-selling with experts warning that we haven't reached the bottom of the market, and may not for another 12-months or so.

On the flipside, stocks that saw the biggest drop in short-interest (and therefore may see their share price rise in the near-term) include the Pact Group Holdings Ltd (ASX: PGH) share price, Villa World Ltd (ASX: VLW) share price and Pendal Group Ltd (ASX: PDL) share price.

Motley Fool contributor Brendon Lau owns shares of Nufarm Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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