Short-selling in the UK's troubled big supermarkets has hit a record, according to research out on Tuesday.
Demand from short-sellers to borrow shares of the UK's big grocers has surged to new highs over the last few weeks, according to research from financial data firm Markit. Average demand to borrow shares in the sector now stands at 11.02%.
Average short interest in the three listed “big four” retailers - Tesco (LON:TSCO), Sainsbury’s (LON:SBRY) and Morrisons (LON:MRW) - more than doubled last year to hit 10.9% in November 2014.
Short-sellers - who sell shares they do not own in the hope of buying them back at a lower price later - have upped their interest in the chains as the retailers battle against competition from discounters and low price inflation.
The tough trading and other problems such as Tesco's accounting issues have also fuelled their short-selling appeal.
While things had stabilised in the opening months of the year, recent earnings updates dampened the rally, Markit said;
Morrisons' recent pledge to slash prices on more than 200 items prompted short-sellers to redouble their position in anticipation of a possible margin-eroding price war.
The surge in short interest means current demand to borrow is up by around a quarter from where it stood eight weeks ago, Markit said.
The two standout names in the sector are perennial short targets Sainsbury’s and Morrisons, in which short interest has topped the 15% mark, the research showed.
This put the two firms at the top of the most-shorted ranking in the FTSE 100 index. The third most shorted constituent, Petrofac (LON:PFC), only had about 11% of its shares out on loan.
Industry leader Tesco has also felt its fair share of bearish sentiment as demand to borrow its shares has risen to 2.3% of shares outstanding.
Markit said the growth in short interest has paid off for short-sellers so far as all three of the “big four” retailers have seen their shares slide in the last eight weeks.
Weakness is also permeating the high end of the sector with high-end grocery delivery group Ocado (LON:OCDO) seeing its short interest surge to the highest level in more than two years in the last few weeks.
Short interest in the firm, which also has a distribution agreement with Morrisons, now stands at 10.5% despite the fact that its shares have continued to climb in the eight weeks.
Markit research analyst Simon Colvin said: "While investors in UK supermarkets may be bemoaning the recent situation, consumers have been reaping the rewards of the increased market competition.
"Food and non-alcoholic prices have fallen across the board, according to the most recent inflation data."