Focused short selling in Europe

The European Equities Long-Short Ratio is a measure of sentiment to determine whether the market is becoming increasingly long or short. It currently stands just short of an annual high at 11.38, meaning longs outnumber shorts by over 11 times. Interestingly, the value of stock on loan since mid-August has fallen to approach the lowest level in a year, as short sellers have not reacted to August’s market volatility in Europe. This is in contrast to the trend to we have witnessed in the US where average short interest passed above 3% across the S&P 500 [click here]. Although the value of stock on loan in Europe is low with average short interest barely above 1% of total shares, we have identified a number of heavily shorted stocks.

Most shorted stocks in Europe

The below Bloomberg RV screen shows the most shorted stocks in Europe with the usual names taking the top spots including:

• Q-Cells Se (ETR:QCE)
• Aixtron Se (ETR:AIXA)
• Meyer Burger Technology (SWF:MBTN)
• Logitech International SA (VTX:LOGN)
• Yell Group Plc (LON:YELL)
• Home Retail Group (LON:HOME)

Amongst the German and UK stocks which make up a majority of the 25 most shorted stocks, we highlight a number of Nordic stocks shown in the screen below.
 

Short interest in Finnish stock, Outokumpu Oyj (HEL:OUT1V) reached a new annual short interest high of 16.5% of total shares last week. It has consistently appeared in our screen of stocks reaching new annual short interest highs as short interest has continued to increase over the year. The stock now sees almost all of its lendable supply out on loan, which indicates that supply is scare and this is also an expensive stock to borrow.

2011 has not been a good year for Danish jewellery company, Pandora A/S which floated almost a year ago and has seen its share price tumble. However, the stock is noticeably absent from out screen as short sellers aggressively covered positions from a high of 17% to 5% of total shares over August. Institutional investors who lend have halved their holdings.

New Short interest annual highs

A number of stocks have reached new annual highs in short interest this week, as set out in the Bloomberg screen below.

On the airline and travel front, Air France – KLM (EPA:AF) has reached a new annual short interest high of 7% of total shares as the share price continues to tumble. Institutional investors have also shown negative sentiment, reducing holdings by 25% over the last quarter. It must be noted that this stock does have convertible bonds in issue, which can inflate demand to borrow the shares, yet there appears to be directional short selling in place.
 

Stocks reporting earnings

The earnings season is coming to a close but there are still a few stocks still remaining to update the markets.

Wm. Morrison Supermarkets Plc (LON:MRW) reports its interim results on Thursday. Its share price weathered the August market volatility well and institutional investment from funds who lend remains strong at 30% of the market cap. Short interest has stayed low at 1% of total shares but is above the insignificant levels recorded last year.

Swiss small-cap, Gurit Holding Ag (SWF:GUR) is also expected to report earnings. Since the share price has fallen off the annual highs seen over the third quarter, institutional investors have also reduced their holding by 30%. Short sellers have been less active in this stock with short interest remaining steady at 4% of total shares.