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Coronavirus volatility leads to rise in shorting of UK stocks

short_selling_volatilityThe number of net short positions of 1% or more reported to the UK’s FCA in the first half of March were up by 40% compared to last year, research has shown.

Although analysis by US-based ETF provider GraniteShares of FCA data revealed that in January and February, the number of short positions were down 12% compared to the previous year, there was a spike in activity up until March 16.

In the first two months of the year, the FCA recorded 719 and 833 short positions respectively. According to GraniteShares, the initial stock market falls caused by the outbreak of the coronavirus would normally have encouraged shorting – but the lack of understanding as to how the crisis wold evolve had the reverse effect.

By March 16, there had already been 712 short positions reported since the start of the month, as market turbulence continued.

Will Rhind, Founder and chief executive at GraniteShares, said: “The data would appear to show that investors were initially taken by surprise and therefore not able to hedge portfolios in a way that might be expected.  However, it reveals a pick-up in shorting activity in early March as investors realised the potential impact of the virus on economic activity.”

“On a daily basis, there is an update of the human tragedy of this virus, and understandably this has spooked investors, including the more sophisticated ones who look to hedge risk by shorting stocks.”

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