Hats off if you placed these “shorts” in 2015 — they were regional top performers, according to two reports this week from Markit.
The financial information services provider reviewed the short-selling market across North America, Asia and Europe and rated the best-returning positions, focusing on the performance of shares after short sellers targeted more than 3 percent of a company’s stock.
For the uninitiated, short-selling involves selling an asset that you don’t actually own, in the hope that the price declines and you can buy it back at a cheaper price and make a profit. So the best-returning shorts will be those where shares decline sharply subsequently — like the ones mentioned below. Markit measures the short interest in a stock by calculating the amount of shares that are out on loan.
2015 proved a bumper year for short-selling around the world, with shorted stocks in Asia and Europe going on to fall by an average of 9 percent and 6 percent respectively, Markit said.
“I think there are several factors really driving that,” Simon Colvin, an analyst at Markit, told CNBC on Tuesday.
“The first factor is that the market does not really have this bull run that we have seen in previous years. So when the market is up 20, 25 percent, it is very hard for a short seller to have a really high conviction about it, just because you can make so much money on the long side. I think when the market does lose momentum you do see a prevalence of rising short interest and so we’ve seen that really kick into high gear in the U.S. and the U.K.,” he explained.
Lonmin was the best short of the year in Europe, with shares falling by more than 99 percent after a peak in shorting activity on April 6, according to Markit.
The platinum mining firm is part of a trend that saw U.K. commodity companies feature heavily in the list of top shorts, as they struggle with the slump in commodity prices.
Lonmin itself is struggling with a mounting debt pile, as well as the near-30 percent decline in platinum prices since the start of the year.
U.K. oil exploration and production company, Afren, was the second-best European short of 2015, as its shares fell by 90 percent from a short-selling peak on January 26.
The company was formerly listed on the London Stock Exchange but is now in administration, brought down by the slump in oil prices, mountains of debt and governance concerns.
Four other top-performing shorts in Europe were energy companies — specifically Seadrill, Premier Oil, DNO Asa and Tullow Oil.
Energy also featured heavily in the top shorts list in Asia this year, with six of its best performers coming from the sector.
These include Singapore-listed Ezra, whose shares registered an annual high in short interest in February and fell subsequently by 82 percent, said Markit.
The top-performing Asian short position of the year was Korean cement pipe manufacturing company, Wei Mon. Its shares fell by 91 percent prior to delisting, according to Markit.
“Short sellers timed their position well given that the surge in short positions came just before the company’s share price collapse,” Markit said in its report on Thursday.
2015 saw a resurgence in shorting activity in the U.S. Traders that took part were rewarded, as stocks with over 3 percent of shares outstanding on loan went on to fall by 15 percent over the year on average, Markit said in a report on Tuesday.
As in Asia and Europe, commodity-producing companies featured heavily in the list of top shorts — but it was apparel maker Quicksilver that won out overall. Its shares fell by 99 percent — similar to the slump posted by Lonmin — after a peak in short-selling on March 20.
Leading the pack in the U.S. among commodity producers was Magnum Hunter Resources Corporation. Its shares are around 98 percent lower than in January, when short-sellers racked up their positions in the stock.
“The last 12 months have seen bears return to the market after three years of bull market-driven isolation,” Markit said on Tuesday.
Top shorts for next year?
Want in on the shorting action, but not sure where to place your money? Here are Markit’s top bets for 2016.