An increasing number of hedge funds use food retailers’ shares to short sell stock, with Sainsbury’s stock already the second most short sold share in Europe. These short sellers estimate food retailers’ shares to drop in value.
Gamble on lower value
Food retailers’ shares are facing pressure for several reasons. Firstly, there is price deflation and the surge of discounters like Aldi and Lidl. These have led that many major food retailers have published disappointing results, exactly what short sellers need as they gamble on lower share value.
Short selling shares basically means these shares are loaned to someone else and those parties hope to buy those shares back at a lower prices and then return them to the original owner. The price difference is basically the profit the short seller seeks.
About 2.6 % of the Stoxx 600 shares are being loaned to another party, while that was merely 1.9 % last year. Swiss watch manufacturer Swatch is the most loaned share as short sellers expect the share to take a hit after the increased competition from smartwatches like the Apple Watch.
