Short selling of supermarket stocks hits record high as investors bet on supermarket war

The latest round of the supermarket price wars has seen short sellers redouble their attention on Sainsbury’s, Morrisons and Tesco with current average short interest reaching an all-time high of 11.02 per cent.

Short sellers try to make money by betting against stocks they think are overvalued.

Sainsbury’s and Morrisons are now the two most shorted constituents of the FTSE 100, according to Markit, the financial information provider.

It warned that online grocers also under pressure; Ocado has seen short interest climb above the 10 per cent mark.

Simon Colvin, research analyst at Markit, said: “UK supermarkets were a major high conviction short play of last year as a mixture of new competition, changing consumer behaviour and accounting irregularity sent share prices in the sector down sharply.

“This negative climate saw the average short interest in the three listed Big Four retailers more than double over the year to hit just shy of 11 per cent in November 2014.

“While things had stabilised in the opening months of the year recent earnings updates have dampened the rally and Morrisons recent pledge to lower prices on over 200 items has seen short sellers redouble their position in anticipation of a possible margin-eroding price war.”

Markit said the two standout names in the sector are “perennial short targets” Sainsbury’s and Morrisons, which have both seen short interest surge past the 15 per cent mark.

Industry leader Tesco has also felt its fair share of bearish sentiment as its demand to borrow has risen to 2.3 per cent of shares outstanding, added Markit.

Mr Colvin said: “This recent growth in short interest in the sector has been paying off for short sellers so far as all three listed retailers have seen their shares slide in the last eight weeks.”

Short selling is the selling of borrowed shares in the expectation of a fall in prices.

The investor’s profit is the difference between the price the shares were sold at and the price they were bought at.