Europe

European credit spreads have hit their widest level this year as fears continue to grow over whether Greece will default and/or leave the Euro in a disorderly fashion. The so called ‘Grexit’ is driving up the cost of credit insurance across the board. Even German debt is now nudging 100 bps and is 3bps more expensive to insure against default compared to yesterday. Does this mean that investors are ramping up their equity shorts too?

The challenge facing much of the Pharma industry is delivering growth, while investors have become increasingly reliant on generous cash distribution policies through dividends or share buybacks. Short interest is ticking upwards, yet institutional investors are staying put.

Stocks covered include: GlaxoSmithKline Plc (LON:GSK), AstraZeneca Plc (LON:AZN), Pfizer Inc. (NYSE:PFE), Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR), Akorn, Inc. (NASDAQ:AKRX), ViroPharma Inc (NASDAQ:VPHM), Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), VIVUS, Inc. (NASDAQ:VVUS)

Are you ready for the new short selling disclosure regime? Law firm Cadwalader have summarized this new regulation that applies to equities and sovereign debt. While it is good news that there will be a pan European standard form of reporting it remains to be seen if these disclosures will make any difference to financial markets.

We see shorts have covered their positions in Spain in aggregate, yet still remain active in many shares, with a focus on those with heavy exposure to the domestic market.

Market regulators in Belgium, France, Italy and Spain lifted the temporary restrictions on new covered short sales for a specific list of financial stocks during February. We have conducted analysis to assess changes in short interest and institutional ownership since the bans were lifted.

European and Asian stocks dominate the list of companies announcing earnings this week although some U.S. stocks are still to update the markets. We highlight the names reporting earnings seeing the highest levels of short interest.

The earnings season is slowing down as most companies have now reported their quarterly earnings. We have used a FactSet screen to identify those stocks which are expected to be updating the markets with their earnings this week and are subject to short selling activity.

Stocks include: DreamWorks Animation SKG, Inc. (NASDAQ:DWA), The St. Joe Company (NYSE:JOE), The Weir Group Plc (LON:WEIR), TomTom NV (AMS:TOM2), Persimmon Plc (LON:PSN), ITV Plc (LON:ITV) and Merck KGaA (ETR:MRK).

USA

The Smartphone wars intensify further as the Mobile World Congress (MWC) next week will be the platform for new Smartphone and tablet launches. Short selling in Apple and Samsung is as absent as the market leaders will be from the event, but other Smartphone manufacturers see more than a flutter of activity. Some hedge funds clearly think that Smartphone profitability is on the decline.

With the easing of short selling restrictions across Eastern Europe, investors are starting to favor the shorting of local listings, bypassing depository receipts (equivalent shares listed in USD).

Stocks include: Otp Bank (BUSE:OTP); Akbank T.A.S. (IBSE:AKBNK); Mechel OAO (ADR) (NYSE:MTL).

Fully transparent and low cost equity investing could be a sensible investment route in 2012. Some experts think that January’s aggressive equity market rebound is temporary and we should instead expect single digit equity growth. If this is the case why give this up in fees to your fund manager? Others are more bullish and think this will be a great year for stock pickers.