Sainsbury’s short-selling rises despite GameStop phenomenon

Both companies are in the top 10 list of the most shorted companies in the UK, as some hedge funds bet against their future success.

Sainsbury’s has 7.73% of its shares in the hands of short-sellers, up from 6.92%, according to the Financial Conduct Authority’s (FCA) daily short positions update, while 7% of Hammerson’s shares are shorted compared with 6.32% last week.

Developments in the US, where retailer GameStop’s shares soared as the Reddit group bought in, do not seem to have worried short-sellers of the two UK companies.

Despite the success of grocery retailers during the pandemic, hedge funds have increased their short positions on Sainsbury’s because of the £137m loss it reported in November and the costs of closing 420 Argos high street stores.

However, one of the most shorted companies in the UK, Cineworld, experienced a decline in the number of shorted shares after the GameStop phenomenon emerged.

The proportion of Cineworld shares being shorted has dropped from 7.22% to 6.45% since January 28, when Reddit users put into action a plan to squeeze short-selling hedge funds out of their position in the US.

Fears of a similar occurrence in the UK may have prompted some short-sellers to close their positions in the struggling cinema chain, despite no indication of leisure venues reopening in the near future. That could be because short-sellers think Cineworld is a more likely target for a short squeeze in the coming weeks.

The FCA said in a statement last week that it “continues to closely monitor trading in UK markets”. It cautioned: “UK investors should take care when trading shares in highly volatile market conditions that they fully understand the risks they are taking. This applies to UK investors trading both US and UK stocks.

“Firms and individuals should also ensure they are familiar with, and abiding by, all regulations including the market abuse and short-selling regimes in the jurisdiction they are trading in.”