Short selling to end — Resilient
• Number of shares of the Resilient group of companies available for speculators to borrow has almost dried up, according to Nedbank
The aggressive short selling of the shares in the Resilient group of companies should soon come to an end with the amount of stock available for shorting having all but run out.
The aggressive short selling of the shares in the Resilient group of companies should soon come to an end with the amount of stock available for shorting having all but run out.
The group has had a torrid 2018 so far, with a sustained decline in share prices as investors borrowed shares from the companies’ floats for a fee then immediately sold them.
These sellers have then purchased the shares at the lower prices, making profits.
But the shares that can be shorted from these floats have all but run out, according to senior property analyst at Nedbank CIB Len van Niekerk.
“Nedbank’s data collected from the market indicates that the amount of Resilient stock available for shorting has dried up significantly in January 2018, and there is now for all intents and purposes no Greenbay and Nepi Rockcastle available to short. These stocks are positioned for a significant short squeeze should the share price start to rise,” said Van Niekerk.
A short squeeze is a situation in which a heavily shorted stock or commodity moves sharply higher, which forces more short sellers to close out their short positions and adds to the upward pressure on the stock.
This implies that short sellers are being squeezed out of their short positions, usually at a loss.
Van Niekerk said significant drops in the share prices of the Resilient group were now likely to stem from market forces, including a stronger rand.
In fact, the Resilient group of stocks — including Resilient, Greenbay Properties, Nepi Rockcastle and Fortress — suffered sharp falls on Monday in line with other listed real estate companies and general equities.
Many South African equities also suffered due to risk-off trade on Monday as investors swapped equities for bonds and other money-market instruments. Banks, retailers and property stocks were hardest hit by risk-off trade.
The JSE all share closed 2.63% lower at 57 113.70 points, and FTSE/JSE SA listed property index was down 3.13% to 567.08 points. This meant the property index was down at levels last seen in 2014.
Resilient and Nepi Rockcastle closed down 6.35% and 5.55%, respectively, on Monday.
Greenbay’s share price actually rose 1.8% and Fortress’s A shares and B shares fell 2.70% and 6.40%, respectively.
“Some analysts have said the short selling helped to bring Resilient group’s share prices down closer to their net asset value. In the past companies like Nepi Rockcastle and Fortress have traded at premiums of 50% and above, which cannot be sustainable over the long term, especially as their dividend projections come down from, say 20% to closer to 10% like their peers,” said Ian Anderson, chief investment officer at Bridge Fund Managers.
Meanwhile Delsa Investments, which is associated with Resilient’s CEO, Des de Beer, bought R19.97m worth of Resilient stock on Monday. De Beer said the group was “operating normally” despite having faced a short-selling campaign from what he suspected was a group of hedge funds.