Short-sellers are stepping up their attack on these ASX stocks

Market optimism may be on the rise, but short sellers have been increasing their bearish bets on these three ASX stocks.

Brendon Lau

Brendon’s passion for shares started by accident in 2003 and he has worked in various roles around capital markets ever since as a trader, stock analyst and markets reporter with the Australian Financial Review. Most of his wealth has come from share investing than any other asset class, and that has given him the financial freedom not to work full-time, if he chooses to. Brendon is a medium to long-term investor who aims to hold positions for a year or longer and is focused on fundamental analysis, although he will occasionally use technical indicators to time his entries and exits. Brendon has an MBA from Melbourne Business School and is RG 146 certified. He lives in Melbourne with his wife, three kids and two dogs.

Published October 13, 2020 5:03 pm AEDT

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.

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