Britain’s biggest internet companies have been targeted by stock market traders in a £1billion bet their share price will fall.
Fashion giant Asos is the latest to find itself in the firing line of short-sellers – who use financial contracts to borrow stock in order to gain if the share price falls – with nearly 8 per cent of its stock now on loan, according to research.
The sudden increase in the number of short positions at Asos, which rose by a third in recent weeks, emerges amid a rout in technology stocks.
Other stocks that have been targeted include Ocado – the largest short position by value at £703million, or 6 per cent of its stock – as well as Boohoo, AO World and Made.com.
Squeezed: Asos faces supply issues and more returns with parties cancelled
Deliveroo has also been dumped by investors. Last week its shares dipped below £1.95 – half its £3.90 flotation price of just nine months ago – though the size of short positions in Deliveroo is low at less than 0.2 per cent.
But Wall Street’s tech-heavy Nasdaq share index took a hammering last week in an investor rout that rocked markets.
The big sell-off even hit stock-market darlings Apple, Amazon and Tesla. Energy companies and banks have gained: businesses that are regarded as less sensitive to interest rate rises, as the Federal Reserve dials down its emergency economic help in the US.
It follows revelations in The Mail on Sunday last weekend that hedge funds and other traders had built up record short positions in The Hut Group, the owner of the LookFantastic and MyProtein brands.
THG’s shares subsequently plummeted 10 per cent on Tuesday, the first trading day after the weekend, and are struggling to bounce back.
In late September the number of Asos shares on loan was less than 1 per cent. The share price has dwindled 34 per cent since then.
Though Asos shares have not fallen significantly in recent days, the data suggests an increasing number of traders believe they may fall further.
Short-selling is controversial because critics say it can be used to engineer a quick drop in a share price.
But short traders and research companies are increasingly seen as an indicator that there are fundamental issues with management strategy, a company’s prospects – or that a company is overvalued for other reasons.
In the UK, the Financial Conduct Authority publishes individual short positions the first time they have reached more than 0.5 per cent of company stock at the end of a trading day. However, because only such big positions are declared, it is hard to pinpoint the exact volume of short positions, other than looking at figures for loaned stock.
So while FCA data currently records that just one hedge fund, Marshall Wace, holds 1.5 per cent of Asos shares, the financial information provider IHS says its figure of almost 8 per cent from lending data provides a ‘close proxy’ for total short-selling volumes at the end of each trading day.
Sources said traders believe Asos, a favourite among Britain’s fashion-conscious 20 and 30-somethings, faces a squeeze despite assurances from the board in November that it could double profit margins long-term as sales rise.
It is without a chief executive after Nick Beighton left with immediate effect in October, adding to the uncertainty.
Its rival Boohoo’s shares have fallen too – by 58 per cent since September. Last month, Boohoo halved sales growth forecasts for the year to February 28, 2022, and slashed profit guidance.
The cost of materials and shipping has soared, more items have been returned than before the pandemic with parties cancelled due to Covid scares – especially last month – and competition from Chinese internet shop Shein grows. By contrast the fortunes of physical shops have rebounded.
Tesco shares are at their highest since before an accounting scandal in 2014, while Marks & Spencer’s share price has soared to levels not seen for almost three years.
At just 0.23 per cent, the number of M&S shares on loan also appears to suggest short-selling traders believe its turnaround is bearing fruit.
This week will see market updates from Marks & Spencer, Sainsbury’s, Tesco, JD Sports and Asos, among others. WH Smith, AO World, SuperGroup and Hotel Chocolat will report the following week.
Next on Thursday said trading had been better than expected and predicted it would reap record profits this year.
It said full-price sales were 20 per cent higher in the festive period than the comparative weeks in 2019, before the pandemic began.
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