Supermarkets under attack from the short-sellers

Jake Cordell
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Some of the big supermarkets have the most shorted positions on the FTSE 350
Some of the big supermarkets have the most shorted positions on the FTSE 350 (Source: Getty)

Traders believe the worst is far from over for the UK's embattled supermarkets, as short-sellers have piled in to bet against the sector in the next few months.

More than three times as many shares are held by people hoping to profit from a near-term fall in the share price of the UK's leading supermarkets as in any other sector on the FTSE 350, according to Bloomberg data compiled by Liberum.

So-called short-sellers bet against a share price going up, so they make a profit when the company value drops. It is the opposite of the traditional 'long' position, where investors hold a share and benefit when the company pays out dividends or its share price goes up.

Measured as a share of the sector's total market value, around seven per cent of shares in the supermarket sector are held by short-sellers. The compares to just 1.5 per cent for the wider retail industry and is more than three-times the next most-shorted sector, capital goods.

Short shrift

Company Shares shorted
Ocado ~ 25 per cent
Morrisons ~ 15 per cent
Sainsbury's ~ 12.5 per cent
Supermarket sector ~ Seven per cent

Investors are most downbeat on FTSE 250 home delivery firm Ocado, where around one in four shares are being shorted - the most of any of the top 350 firms listed on the London Stock Exchange. Morrisons sits in third place, with around 15 per cent of its shares held in short positions, with Sainsbury's behind it on 12.5 per cent.

Despite the stock markets turning away from domestic stocks in the aftermath of the EU referendum, the share prices of the big supermarkets have held up relatively well. Only Ocado is significantly down on where it closed the day before the vote.

With sterling depreciating against the dollar and the euro, the price of imported goods for UK consumers is set to rise. This could put supermarkets in a tricky position as they battle to slash prices and remain competitive in the face of continuing pressure from the discounters. Some traders clearly think the industry has further to fall.

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