JSE is fertile ground for short sellers
Several major listed companies have up to 5% of their shares out on loan
Up to 1.42%, or R126.7bn, of the JSE’s Top 40 shares are in the hands of short sellers, showing that the market was a fertile ground for risky bets long before it became fashionable for hedge funds to release negative reports about a company and further depress its shares.
Mediclinic International, Anglo American, Shoprite and Woolworths had between 1% and 5% of their shares out on loan to short sellers on Monday afternoon, with Anglo and Mediclinic suffering the same fate in the UK, where nine funds are shorting the companies.
Short selling has recently come under the spotlight after US-based Viceroy Research wrote a damning report shortly after retailer Steinhoff International admitted to accounting irregularities, without specifying them. Viceroy’s report touched on some of these irregularities.
Two weeks ago, 36ONE Asset Management owned up as the author of an anonymous report criticising the Resilient group of companies, which include the Fortress Income Fund, Hammerson and Nepi Rockcastle.
36ONE said it had shorted Resilient. It is engaged in a public stand-off with its board, which it said had denied it access to its upcoming results presentation, according to Moneyweb. Resilient said 36ONE refused an opportunity to meet privately.
But any concerns with the Resilient stable are not new. Hammerson, also listed in the UK, has been targeted by short sellers there as far back as 2014, according to the public filings. On the JSE, Fortress B shares were sold short before any short positions appeared in Resilient.
"There are always bears and expensive stocks, and Steinhoff, Resilient, Fortress are all Top 40 stocks under known short reports," said Simon Brown of JustOneLap. "Most shorts are hedge funds and they keep quiet about shorts. They do the minimum disclosure documents because they have to. But other than that … they are very slow to talk up their shorts."
This is apparent in fund manager BNP Paribas Asset Management’s response to questions about why the group is shorting Anglo American. While spokesman Quentin Smith says he is unable to speak on behalf of the financial services conglomerate, the fund manager generally does not comment on its equity positions.
"As we are part of a larger integrated banking and financial services group, here at BNP Paribas Asset Management we have a policy of not discussing individual equity holdings in order to avoid compromising any relationships that may exist elsewhere within the group," said Smith.
The exception to the rule – such as 36ONE and Viceroy – is a new development, akin to the brash style adopted by US fund managers such as Bill Ackman, whose Pershing Square hedge fund accused nutrition company Herbalife of being a pyramid scheme and took a large short position in the company.
"The response to Capitec/Viceroy suddenly has people interested because frankly it may help your cause and drive prices lower," said Brown. "I think we’ll see more of it, even if cloaked in the ‘it was leaked by error’ style for now."