Short sellers raise the stakes on UK short positions

• Bearish bets on UK equities have increased amidst sell-off
• Outsourcing firms continue to see short demand increase
• Short demand in GBP terms highest post-crisis

With the FTSE 350 index down over 5% amid the global correction, it’s not surprising that short sellers have increased their positions. Given how far many of the more popular shorts have declined in value, it’s a reflection of significantly increasing demand to see the short balance in GBP terms up 2% year to date. The current 30.8bn in short balances represents the largest position for short sellers in UK equities since Q1 2009. The largest short balances are concentrated in the Materials, Energy and Food & Staples Retailing industry groups, which together account for 38% of UK short balances.

Short positions in the FTSE 350 have only increased amid the selloff, with the average short demand at 2.3% of outstanding shares. This is driven by both a larger number of stocks with high demand, as well as increasing demand for the stocks which were already highly shorted.

Following the collapse of Carillion, short sellers have added to bets against other outsourcing firms, particularly Interserv plc. After initially rallying with the rest of the market in January, IRV shares have tumbled again, now down more than 20% year to date. During that time, short sellers increased their position by 1.2% of shares outstanding, bringing the total to 16.3%.

Other outsourcing firms which have seen meaningful increases in short demand year to date include Capita plc and Serco Group plc. The exception is Balfour Beatty plc, where short demand has declined by nearly 1% of shares outstanding year to date.

Short sellers have also maintained positions in the two most popular grocery shorts, J Sainsbury plc and WM Morrison Supermarkets plc, with both still in the top 10 UK shorts in GBP terms.

The most shorted UK equity by percentage of market cap is Cineworld Group plc, which currently has short balances equal to 24% of outstanding shares. It’s important to note that this is primarily a bet on the completion of the firm’s $3.6bn acquisition of Regal Entertainment and not an outright short of Cineworld. With that said there were a large number of shorts in Regal, so it’s possible the combined firm will come under short seller scrutiny as well.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.