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The most shorted stocks revealed

by LLB Reporter
9th Apr 18 7:57 am

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The consumer sector, which includes high street retailers, restaurants and manufactures of retail goods, has consistently been the most shorted stock, according to a new report.

With 31 per cent of short positions over the period being in the Consumer sector. The next closest sector with 9.9 per cent of short positions is the Real Estate sector – which includes retail focused real estate companies including Intu, Capital & Counties, and Hammerson.

There was a 66 per cent rise in short positions in consumer companies between the beginning of 2015 and the end of 2017 when a massive 32 per cent (214) of all short positions were in consumer companies. The first couple of months of 2018 have seen this increase to 34 per cent of all shorts.

In total, 38 per cent of the top 50 shorted companies in 2017 were consumer companies.

Richard Hodgson, Restructuring & Insolvency partner at Linklaters, talks about the story behind the numbers: “Shorting is, in essence, a method of making money from what you believe to be a stock that is about to decline. Monitoring short positions is one of many proxies for distress, be that in a particular company or a sector. Given the cyclical nature of retail and consumer, it’s no surprise that consumer companies have consistently been most shorted but the sheer volume of short position reporting at present is higher than many might have thought and gives a clear indication for how things might develop in the sector in the coming months.”

“The UK consumer sector is in a precarious position. Consumer spending funded by debt, increasing wage costs and business rates, highly levered balance sheets, dominant online players eating into market share, inflexible store portfolios and adverse currency fluctuations – not to mention challenges posed by digital and click and collect – retailers are coming under pressure from all angles.”

“A main driver in the consumer sector continues to be convenience. Retailers and restaurants must face the challenge of adapting to a customer base that may seek tangible interaction through traditional brick and mortar access points whilst increasingly demanding credible options and the ease that comes with that.”

“In the casual dining sector, there are several things in play that, when they come together, creates a perfect storm. First, there’s oversaturation in the market. A number of chains expanded rapidly to the point that supply has raced ahead of  demand. Couple that with increased food prices, staff costs and business rates, owners are looking at where they can reduce overheads and ultimately capacity. It’s a horrible combination and one which is worsened in a challenging macro-economic environment.”

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