Short sellers stick with UK stocks post Brexit

Short sellers stick with UK stocks post Brexit

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Short sellers have upped their bets against domestically exposed UK firms in the six weeks since Britain voted to leave the EU.

Data from Markit shows that shorting activity on the FTSE 350 following the referendum was higher than at any time in the last two years.

"While the average short interest across the index has tapered off somewhat in the last two weeks, the current demand to sell the index short is still over 15% higher than on the eve of the referendum which indicates that short sellers are not going anywhere," said Markit analyst Simon Colvin.

“Overvalued firms with poor share price momentum have proved to be the short favourite as this basket of shares has seen a 29% jump on average shorting activity since the referendum."

These firms include heavily shorted retailers such as Sainsbury’s and Tesco as well as service providers such as Whitbread and the AA who now have 2.8% of their shares shorted on average.

Markit stats show UK companies with higher foreign sales exposures were rewarded to a greater magnitude than those with domestically focused businesses

The data firm's value momentum strategy, which favored British companies with greater percentage of revenues associated with exports outside of Europe over those with local exposure, earned a long short return of 10.41% following the announcement of the Brexit vote, with 8.76% coming in the first 2 days.

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