The latest short-selling data from ASIC holds a few surprises. For one, short-sellers are increasing their attack on a number of ASX shares that have largely escaped the attention of these bearish traders.
Stocks that have seen the biggest increase in short-interest (the percentage of total shares that have been short-sold) over the past month have not been targeted in any meaningful way before.
The other thing that could surprise is that the total number of ASX shares that are short-sold fell around 2% over the month to October 7 (that’s the latest data from ASIC, which is always a week behind).
The decline comes even as the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index dipped 0.5% over the month and as jitters about the health of the global economy continue to drag on equities.
Short-selling is when a trader sells borrowed stock on-market with the aim of buying it back at a lower price at a later date to profit from the difference.
This allows them to benefit from falling share prices and it’s worth paying attention to what this group is doing as they tend to be more sophisticated than the average retail investor.
Wearing the wrong gear
Coming back to the stocks that have seen the biggest jump in short-interest, adventure equipment retailer Kathmandu Holdings Ltd (ASX: KMD) tops this dubious list.
The percentage of its shares falling into the hands of short-sellers jumped to 5.3%, or 12.1 million shares, from nothing. That’s right, just a month ago, no one was shorting the Kathmandu share price.
Short-sellers interest in Kathmandu may have stemmed from its $350 million takeover of surf wear company Rip Curl and Kathmandu’s lacklustre capital raising that fell a little short of target.
History has shown that most takeovers are shareholder value destroying for the bidder and value adding for the target. Short-sellers going from zero to 100 on the KMD share price may be a reflection that some investors think history will repeat.
Bed of thorns
The stock with the second largest increase in short-interest is homeware and bedding retailer Adairs Ltd (ASX: ADH).
The amount of its shares that have been flogged by short-sellers popped by 4.5 percentage points to 6% over the month.
Interestingly, Adairs captured the attention of short-sellers as its share price rallied around 10% over the period as some brokers upgraded the stock to “buy”.
The stock had suffered a big sell-off in June on the back of a dismal profit update, but clearly not everyone is convinced the stock has turned a corner.
Lost its lustre
The stock that suffered the third biggest rise in short-interest is gold miner Resolute Mining Limited (ASX: RSG).
Short interest in the stock rose 4.1 percentage points on the month to 5.9% even as investors flocked to the safety of gold in the face of geo-political tensions.
Investors have taken a dim view of the stock after the miner reported equipment problems at its Syama Gold mine in Mali recently.
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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.