As another dramatic day shaped up for the battle between retail investors and hedge funds in the U.S., shares of some of Europe’s most shorted stocks were climbing.
Shares of French real-estate investment trust Klépierre
surged nearly 20%, leading the Stoxx Europe 600’s best performers on Wednesday. According to public-filing tracker website WhaleWisdom, Klépierre is one of the most shorted stocks in France, behind airline Air France-KLM
and retailer Casino Guichard-Perrachon
whose shares were flat and up 3.5%, respectively.
The moves come as videogames retailer GameStop
surged another 70% ahead of the stock market’s open on Tuesday. Shares have gained 600% in January as retail investors, organizing via forums such as Reddit’s WallStreetBets, sought to boost a group of heavily shorted stocks.
And there are signs the pressure by those retailers may have yielded fruit. After being targeted by those retail investors, hedge fund Melvin Capital closed out its short position in GameStop with hefty losses, CNBC reported on Wednesday.
U.S. movie-theater chain AMC Entertainment
has also been caught up, with shares up nearly 150% in premarket trading on Wednesday, and have gained 133% in 2021 so far. Possibly echoing that action, shares of Cineworld
a U.K. movie-theater chain that has been a target of short sellers as the COVID-19 pandemic has ripped into its business, climbed 11% in London, having gained about 27% so far this year.
According to ShortTracker, which gathers information based on the Financial Conduct Authority’s daily short positions report, the top five most shorted U.K. companies currently are oil company Premier Oil
Cineworld, education-software publisher Pearson
oil-field services company Petrofac
and grocer Sainsbury
Shares of Pearson were up 12% and Petrofac 7% on Wednesday, though Sainsbury was barely higher.
“There does appear to be a narrative that if there are large short positions on any particular stock, there could be a certain amount of stock preservation by people who hold those positions,” Michael Hewson, chief market analyst at CMC Markets, told MarketWatch,
Those moves clearly are no match for what has been happening in the U.S., where the retail investing landscape is older and more entrenched. Achieving what retail investors have in the U.S. would be much harder, as there is no real free-trading app like Robinhood, which had to postpone its 2020 U.K. rollout “indefinitely” due to the COVID-19 pandemic.
Hewson said the U.S. may be seeing a lot of traders spending stimulus checks, noting a similar spike seen in Robinhood trading last summer. “Now we’re getting a similar thing, little guys sticking it to the man,” he said.
What investors in the U.K., at least, will find is plenty of websites that lay out which stocks are the most shorted. So those hedge funds may be starting to get a little “uncomfortable,” he said. As for those investors, “just be prepared to jump out as soon as there’s any indication the tide is turning.”
The moves seen in Europe reflect a need to manage risk, said Neil Wilson, chief market analyst for Markets.com, in a note to clients.
“Given the situation across the pond vis-à-vis Melvin, I would think all hedge funds are taking a good hard look at all their short positions and deciding whether they are worth it. Shorting can result in potentially infinite losses, so the risk management is always against you if the flows are there from buyers,” Wilson said.