What are the ASX’s most shorted shares and should they be avoided?
What Is ASX Short Selling?
Short selling basically involves borrowing a security, for example, shares, and selling them in the open market with the idea of buying them back later for less money and hence making a profit. It can be a dangerous game to play and I wouldn’t recommend it as a strategy for the uninitiated.
This Rask Finance video explains the important details about shorting:
Who Cares About Shorting?
A high level of short selling in a company can sometimes serve as a precursor to bad news and a tumbling share price. Here are the five most shorted shares on the ASX rught now.
1. Nufarm Limited (ASX: NUF) is currently the most shorted ASX share with more than 18% of its shares held short. The agricultural chemical company has come under pressure due to the ongoing drought conditions and its weak sales numbers. The Nufarm share price is down more than 25% over the last 12 months.
2. Inghams Group Ltd (ASX: ING) has been another company adversely affected by drought conditions. The poultry producer also provided weak earnings guidance for FY20 which will have contributed to the negative sentiment. The share price has fallen more than 20% since the release of the full-year results.
3. Galaxy Resources Limited (ASX: GXY) shares have come under pressure due to falling lithium prices. The outlook for lithium prices doesn’t look great either with estimates showing that growth in supply will comfortably exceed demand. The Galaxy share price has lost nearly 75% from its peak early last year when it briefly went above $4. This morning its shares trade at just $1.06.
Orocobre Limited (ASX: ORE) has just under one-sixth of its shares held short. Orocobre is also a lithium miner and so faces the same issues as Galaxy. The Orocobre share price has had a miserable time, down more than 60% in 18 months.
Bellamy’s Australia Ltd (ASX: BAL) saw its share price fall significantly upon releasing its results last week before investors took the opportunity to swoop in. The share price has since recovered and is now trading above the price it was on the morning of its end of year result.
Buy, Hold, Sell Or Get Out Now?
For an investment case, the company of most interest to me would be Bellamy’s due to its potential for significant long-term growth. Whilst its certainly worth keeping an eye on the short interest you shouldn’t allow reports or articles like this one to influence your thinking too much. After all, every time you transact on the share market there has to be someone who disagrees with you and is willing to take the opposing side of the trade.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Luke has no financial interest in any companies mentioned.