Supermarket price war attracts short sellers to record positions in sector

It's no secret UK supermarkets have been under the cosh both in terms of the ongoing price war with discounters Aldi and Lidl, as well as several problems of their own making. Now it seems short sellers are making hay while the sun shines. 

 

The sector has attracted record interest from short sellers, with the average interest in the four UK listed firms – Sainsbury's, Tesco, Morrisons and Ocado – breaking the 11 per cent barrier for the first time. 

 

Sainsbury's and Morrisons are now the two most-shorted constituents of the FTSE 100, a Markit report published today found. As of this week, Sainsbury's had more than 16 per cent of shares being shorted, while Morrisons was bobbing below at around 15.8 per cent. 

 

Short interest in delivery service Ocado has climbed above 10 per cent. Tesco is way below this level, at 2.4 per cent, but according to the report the beleagured supermarket is still suffering from “its fair share of bearish sentiment”. 

 

Across the stocks, 11.02 per cent of the sector is being shorted. 

 

Author Simon Colvin 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 more than 200 items has seen short sellers redouble their position in anticipation of a possible margin eroding price war.”