Market optimism may be on the rise, but short-sellers have been increasing their bearish bets on these three ASX stocks.
Short-sellers are traders who borrow stock to sell on market with the aim of buying it back later at a lower price to profit from the difference.
While the S&P/ASX 200 Index (Index:^AXJO) closed at a seven-month high on Tuesday, short-sellers believe some ASX stocks are poised to fall.
It pays to keep an eye on what this group of traders are doing as they tend to be more sophisticated than the average punter.
Short-sellers invading this Galaxy
The stock that has seen the biggest increase in short bets over the past month is the Galaxy Resources Limited (ASX: GXY) share price.
The latest ASIC data to 7 October (the data is always a week behind) showed 285 basis point increase in short interest over period. The total percentage of Galaxy’s shares that have been short sold stands at 9.13%.
This is probably due to Tesla Inc (NASDAQ: TSLA) Battery Day event three weeks ago. This was where its founder Elon Musk outlined plans to use less lithium and more recycled inputs to build the next generation of batteries for its electric vehicles.
The news couldn’t have come at a worst time as the lithium market is already oversupplied.
Acquisition risks catching the eye of short-sellers
The second most attacked stock is the Uniti Group Ltd (ASX: UWL) share price. Short interest in the telecom services group surged 247 basis points – taking the total percentage of its shares being shorted to 4.77%.
Short-sellers are probably targeting the stock as it goes into a bidding war for OptiComm Ltd (ASX: OPC).
Uniti put an initial bid in to acquire the network provider but First State Super made a counteroffer for OptiComm.
History shows M&A creates value for shareholders in the target and destroys value for the acquirer. A bidding war only increases the probability that Uniti will overpay.
Drug development setback
Finally, the Mesoblast limited (ASX: MSB) share price experienced the third largest increase in shorts for the month in question. The level of shorts jumped 241 basis points to just over 8% of the total MSB shares on issue.
Short-sellers are increasing their bets against the stock as the biotech suffered a setback with the US Food and Drugs Administration (FDA).
The news was a shock to the market as investors were expecting smooth sailing its remestemcel-L drug, but the FDA asked it to undertake another randomise test.