European shares perform for short sellers

European shares perform for short sellers

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Short sellers have done well in their bets on the under performance of.European shares, despite a price surge in August.

With lacklustre economic news over the past month, equity markets in Europe have rebounded from recent lows as investors increasingly expect further monetary easing from the European Central Bank (ECB).

“Despite talk of ECB driven risk rally, shorts have managed to perform relatively well in Europe as the 10% of shares which command the highest fee in the securities lending market, a gauge of how committed short sellers are in a name, have continued to underperform,” said Simon Colvin, analyst at the financial information firm.

The shares with the highest fees among the Markit developed Europe universe have returned 0.6% over the month of August which is nearly 1% lower than the returns posted by the wider universe.

The latest month’s underperformance is the largest underperformance in three months, and marks the fifth month in a row in which expensive-to-borrow shares have trailed behind the rest of the market.

“The fact that the most expensive to borrow names have underperformed in such a consistent manner over six of the last eight months has taken their cumulative underperformance to 4.6%, making it the worst performing group of shares when ranking by cost to borrow,” said Colvin.

There are 19 capital goods companies within the most expensive to borrow group of shares, making it the best represented followed by energy and real estate firms.

Finnish firm Outotec is the most shorted with over 10% of its shares out on loan. Its shares hover near their lowest level since 2011. Also seeing a high proportion of their shares out on loan are Maire Tecnimont in Italy and Sgl Carbon in Germany.

The company which performed the best for short sellers in Europe over the last month was King Digital, whose shares slid by over 28% in August.

“While aggregate short interest in this name is low with only 1.9% of shares sold short, this is primarily driven by the fact that the newly-listed company is hard to locate in the securities lending market with only 1% of its shares in lending programmes,” said Colvin.
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