By Thyagaraju Adinarayan and Saikat Chatterjee
LONDON (Reuters) – Billions of dollars in global betting could be jeopardized as amateur stockbrokers challenged the clumsy positions of influential funds, raising valuable depreciation and letting professionals look at possible big losses.
Gone are the days of bruised retail investors fleeing after prominent hedge funds settled against a stock – the GameStop effect bounced across US markets and spread to Europe.
Shares of the 20 Russell 2000 index companies with the smallest bet against them have risen by an average of 60% so far this year and outperformed the rest of the market, a Reuters analysis of Refinitiv data shows.
Similarly, the best performers in Britain this week were companies such as Pearson and Cineworld, in which investors also have a significantly short position.
But the rise in the share price such as the 700% increase in US video game retailer GameStop, by 700%, could potentially wipe out billions of dollars from the short bets.
Bets against GameStop alone amounted to more than $ 2.2 billion as of Monday, FIS’s Analytics data showed, equivalent to more than a fifth of the company’s market value.
However, the company’s share price has tripled since the end of last week and reached as much as $ 340 in the US trading before the market until Wednesday.
“Most short positions are financed on margins. And when markets run against you, you are stopped if you are a short seller,” says Kaspar Hense, a fund manager at BlueBay Asset Management, which owns $ 60 billion in assets.
“A short position can exaggerate your losses if you do not actively manage your position.”
Several traders told Reuters that one of the reasons for the rise in the price of some shares was that short sellers were buying back into the stock to cover potential losses – the classic short press – that are attracting more small investors in the hope of waving.
Short sellers usually borrow shares to sell with the intention of buying them back later when the price drops. The premium they pay to borrow the shares reflects the demand for them.
All of the GameStop shares that would be available to borrow are already on loan, and traders estimate the annual borrowing cost at 25% -50% of the company’s share price.
The short seller Andrew Left, who runs Citron Research and is one of the big names behind the bet against GameStop, shortened the stock when it traded around $ 40 and expected it to halve the value. He still has a short bet, although he covered the majority of the position with a loss of 100%.
Melvin Capital Management also closes a short position against GameStop with a loss of 100%.
GameStop is not the only short bet that has soured. BlackBerry, Bed Bath & Beyond, AMC, Macy’s and Cinemark Holdings have risen between 100% and 250% so far this year.
In Europe, Evotec, Nokia and Varta outperformed the broader 2021 market.
Refinitiv data on the performance of some stocks with high short interest rates:
Company RIC YTD rises Short interest rate
GameStop 700% 100%
AMC Entertainment 400% 100%
Bed bath 110% 62.8%
BlackBerry 250% 35.8%
Dillard is 100% 82%
Discovery 35% 34%
Graph: Smallcap index surpasses S&P 500 – https://fingfx.thomsonreuters.com/gfx/buzz/rlgvdgqqepo/Pasted%20image%201611745423311.png
(Reporting by Thyagaraju Adinarayan and Saikat Chatterjee; Editing by Sujata Rao and Kirsten Donovan)