Short-Sellers Foresee More European Economic Gloom

(January 13, 2012)  —  Short-sellers have stepped up the pressure on European companies that produce non-essential goods, as they fear economic conditions are set to worsen and hit the buying public in the pocket.

Short positions in media, automotive and other discretionary retail companies are more than double those held against firms providing essential items and services, such as food and utilities, according to Data Explorers.

A report from the data provider said: “Short sellers, the archetypal contrarian investors, still anticipate further trouble with the economically sensitive European Consumer Discretionary sector seeing twice the level of short interest than the relatively insulated stocks within the Consumer Staples sector.”

The average short interest in the European Consumer Discretionary stocks is around 1.8% of total shares in the company, whereas the short interest in European Consumer Staples is around 0.8%.

Continued turbulence in the Eurozone, with no credible solution in sight, has led to investors being fearful of taking long-terms positive bets on the companies operating in the region.

Austerity measures in many of the region’s member states have also meant consumers have had to curb their spending on non-essential items.

Retailers offering a range of goods either on the high street or via the internet have been the most shorted followed by automotive companies, Data Explorers said. Each sector had an average short interest of over 3%.

European Consumer Staples shares have performed better than the cyclical Consumer Discretionary shares over the past turbulent year, Data Explorers said. On average, Consumer Staples stocks have seen their share price fall by 7.6%, compared to a 26.8% fall seen by the Consumer Discretionary shares.

The Eurostoxx 600 index fell by 12.3% in the same period.

Despite some UK ‘staple’ retailers reporting poor sales figures from the Christmas season, Data Explorers said these companies had not piqued short-sellers’ interest.

The data provider’s report said: “Some UK Staple retailers which are reeling from a disappointing Christmas season have low and falling short interest, with Tesco, Wm Morrison and Sainsbury all having less than 1% of their shares on loan. Morrison is the only retailer with greater than average short interest. It currently sees 1% of its shares on loan, although this is down from 2% three months ago.”