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Short sellers scorched as vaccine news revives battered blue-chips

The bears of the FTSE 100 have unexpectedly found themselves caught in a trap after news that Pfizer's coronavirus vaccine candidate was over 90% effective sent equities soaring on Monday

BHP Group PLC - Short sellers scorched as vaccine news revives battered blue-chips

The news that a coronavirus vaccine developed by Pfizer Inc (NYSE:PFI) and German firm BioNTech is 90% effective in Phase III clinical trials has been greeted with jubilation across the world as well as global stock markets, however, for the FTSE 100’s short sellers the event has proven to be a bitter pill to swallow.

The breakneck surge in equities on Monday following news of the vaccine’s effectiveness sent shares soaring in sectors most heavily damaged by the pandemic, simultaneously wiping out profits for short sellers that sought to take advantage of the economic turmoil.

READ: Pfizer to submit COVID-19 vaccine candidate for emergency use authorisation next week after positive late-stage trial data

According to data from Ortex Analytics, short positions held in aircraft engine maker Rolls-Royce Holdings PLC (LON:RR.) are now sitting on an eye-watering loss of £124.5mln so far this month after the vaccine news sent the firm’s shares surging around 61%. This marks a stark contrast to October, where short sellers made a profit of around £238mln on the stock as the stock price tumbled following a £2bn refinancing to help support the company during the pandemic.

The trading flurry following Pfizer’s announcement has also burned short sellers of stockbroker Hargreaves Lansdown PLC (LON:HL.), with traders betting against the firm currently nursing a £52.6mln loss compared to a £50.7mln profit in October.

Meanwhile, the short sellers have also seen their losses widen against oil major Royal Dutch Shell PLC (LON:RDSB), with an impending end to the pandemic likely to fire up oil demand once again. Last month, short sellers made a £23mln loss in positions against the stock, however so far in November, this has widened to £158.6mln.

Another huge reversal in short seller fortunes has been from mining giant BHP Group PLC, which so far this month has delivered £126.6mln in short losses compared to a profit of £152.6mln in October.

BHP’s reversal, however, may be less connected to the coronavirus vaccine, as on Monday the company’s stock soared after the UK High Court threw out a £5bn lawsuit against the firm over a dam failure in Brazil in 2015.

Overall, November has started on a terrible note for the FTSE 100’s short sellers, with short positions across companies in the index already down £1.1bn.

“Whilst a Biden victory [in the US presidential election] may have already been largely priced in, the concurrent announcement about a potential [coronavirus] vaccine has created a sense of optimism that an end to the pandemic could be in sight and may come sooner than anybody had predicted. This has forced many investors to quickly reassess their short and medium term outlooks on companies ranging from jet engine manufacturers to food delivery companies and yesterday we saw significant price adjustments to reflect changing views on the winners and losers if the pandemic is resolved earlier than anticipated”, Ortex co-founder Peter Hillerberg said in a statement.

“Whilst Pfizer described yesterday as a great day for science and for humanity, it was anything but for short sellers who look to have been caught out by the market adjustment…Without a change in momentum, November could become a very challenging month for the short selling community”, he added.

The shoe is now on the other foot for lockdown’s winners

While those blue-chip firms hit hard by the effects of the pandemic are now find themselves on the up again as investors see a light at the end of the tunnel, those firms that found themselves perfectly placed to profit off of the disruption caused by lockdown measures now find themselves on the slide as their market dominance looks set to be broken.

For example, food delivery app Just Eat Takeaway.com NV (LON:JET) has so far this month netted its short sellers £40.9mln in profits. The company’s shares suffered a steep fall on Monday when the vaccine news was unveiled and is currently trading at around 10% below its closing price last Friday, the last trading day before the Pfizer news broke.

It is a similar picture for other perceived winners of the pandemic. Reckitt Benckiser PLC (LON:RB.), the maker of cleaning brands such as Dettol and Lysol, has delivered a short profit of around £8.5mln in the first days of November, while its shares are currently trading 6% below their pre-vaccine closing price.

Quick facts: BHP Group PLC

Price: 1755.6 GBX

LSE:BHP
Market: LSE
Market Cap: £88.79 billion
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