Short selling revving up… mostly in Asia

Car makers have been issuing gloomy statements this week as rising costs (steel up 7% this year) and softening demand dent their profits. Things are even bleaker if you are a mechanic at Audi. This division of Volkswagen is the main profit driver at present, which has led to the postponement of summer holidays so that production of Audi’s SUVs (Q5 and Q7) can continue to meet demand. Investors are not betting heavily against the car makers in Europe or the U.S., but there is some evidence of short selling building up in Asia. We will look at Mazda Motor Corp (TYO:7261), Geely Automobile Holdings (HKG:175), Great Wall Motor Co (HKG:2333), Peugeot (EPA:UG), Ford (NYSE:F) and Tesla (NASDAQ:TSLA).

Asia

Mazda Motor Corp (TYO:7261) are due to announce results any minute now (July 29th) against a backdrop of rising demand to borrow its shares, with 3.7% of the company on loan - a one year high. On the flip side, funds who lend have been buying more and more shares resulting in their holdings amounting to 10.7% of the company. This too is a one year high showing that there are plainly two schools of thought going into Mazda’s earnings.

Of the other leading Japanese car makers, none are as heavily borrowed as Mazda. Mitsubishi Motors has witnessed declining short interest and now stands at 2.7%. Toyota’s (TYO:7203) figure stands at 0.3%. Daihatsu Motor Co is at 1%.

There is plenty of sizable negative investor sentiment towards Hong Kong listed auto firms like Geely Automobile Holdings (HKG:175). One wonders what is going on, with demand to borrow consistently rising for the last 6 months to over 6% of the company, which is over half the lendable supply. It is a similar story in Great Wall Motor Co (HKG:2333) where the short interest is over 5%.

Europe

The 8% price fall in Peugeot after Wednesday’s earnings was somewhat anticipated by long only funds. Such funds (who lend) hastily sold off after the recent dividend record date (6th May) reducing their holdings from 48m to 42m shares. This is a half year low. Short selling is the second highest in the CAC at 6.2% of all shares. None of the rest of the main European car makers are seeing noteworthy movements in securities lending flows.

US

Ford (NYSE:F) reported pre-tax operating profit slipping 2.2% this week, but the short sellers are not too active here, with demand to borrow generally coming down to reach record lows of under 4%. By contrast, interesting gyrations can be witnessed in what the long only funds are doing. These funds fluctuate between 660m shares in Ford and 720m, but it is currently nearer the low end.

We have already written about Tesla (NASDAQ:TSLA), but will do so again as the data continues to intrigue. Short sellers continue to build on an already large short position in this electric car maker with 15.2% of the company being borrowed. By contrast, long only funds seem to be bullish and they continue to add to their holdings. At some point, someone will be wrong!