Short Sellers Are Preying on Big High Street Brands
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
High street retailers and restaurants are being targeted by short seller, with almost a third of the total position on the stock market in the consumer sector, research has found.
The businesses have also been on the end of a 66 percent rise in the number of short positions over the past three years, while 38 percent of the top 50 shorted companies last year were consumer companies.
The findings from linklaters, the law firm, underline the pressure on chains as cost rise and customers spend less, and were based on regulatory filings made by companies to the Financial Conduct Authority.
Short-selling typically by hedge funds, involves paying a fee to borrow a share and then selling it in the hope of buying it back more cheaply at a later date and turning a profit before returning the security to its original owner.
The top ten most shorted companies currently include Debenhams, the Restaurant Group, which owns Frankie & Benny’s and Chiquita; Pets at Home; Marks and Spencer and Green core, the food producer. WM Morrison; Greene King, the pub retailer and brewer, and Ocado also make up the top 20.
The retail and casual dining industries have come under serve strain. Toys R Us and Maplin, the electronics retailer, collapsed in to administration, New look agreed a restructuring with its creditors last month and Prezzo Byron Jamie’s Italian have shut restaurants. Conviviality, the owner of Bargain Booze and Wine Rack chains, collapsed after management accounting problems and has been forced to sell off its wholesale and retail divisions.
Mother care, Debenhams, Moss Bros and Carpet right have also all issued profit warnings this year.
The strength of the retail industry is seen as barometer of consumer sentiment and is an important contributor to economic growth. Retailers are being hurt by cut-throat competition from online and discount businesses as well as increasing cost from the living wage, apprenticeship levy and the fall in the value of the pound since Britain voted to leave the European Union.
The casual dining industry has struggled with oversaturation in the marked after number of chains expanded rapidly, with their problems having been compounded by rising cost.
The research by Linklaters found 31 per cent of short position between the start of 2015 and the end of 2017 were in the consumer sector, which includes retailers, restaurants and manufacturers of retail goods. It was significantly higher than real state, the next closest sector, which accounted for almost 10 per cent and compare with the only 2 per cent in energy and utilities and the same percentage in insurance.
Rishard Hodgson, restructuring and insolvency partner at Linklaters, said short positions were a proxy for distress and given the problems facing consumer businesses it was unsurprising investors were seeking to profit from falls in share prices by taking short positions. However, he said: “The sheer volume of short position reporting at present is higher than many might have thought.”
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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