The Singapore stock market has unexpectedly turned into a playground for short-sellers looking to profit from weakness in shares of companies with heavy exposure to a slowing Chinese economy or the energy sector.
The average short interest for stocks traded on the Singapore Exchange (SGX) has jumped over a quarter so far this year, with nearly 1.2% of companies’ free float out on loan compared with 0.9% on December 31, according to London-based financial information services firm Markit.
Singapore has never been a hotbed of short-selling like Hong Kong, due to the market’s relative small size and lack of depth. The surge in shorting interest was triggered by China’s slowing economy and low energy prices. Attacks on commodity trader Noble Group from a research outfit and a short-seller also stoke shorting interest.
“Perhaps the short-selling in Hong Kong and China has influenced the Singapore market,” said Relte Stephen Schutte, a Markit analyst, noting that short-sellers have been targeting firms whose accounting and corporate governance are being investigated, most recently Hanergy Thin Film Power Group in Hong Kong. “That could be filtering through into other Apec (Asia-Pacific) regions... It’s difficult to say where the SGX is going in the future.”
The 30 largest stocks that make up Singapore’s benchmark Straits Times Index, including Noble Group, attracted more interest from short sellers than the wider SGX, with an average of 1.5% of their outstanding shares on loan - still a relatively low number. Energy and manufacturers of capital goods were the most popular targets.
Noble’s shares have fallen more than 40% since Iceberg Research issued its first report in mid-February alleging that the firm had inflated asset values. Noble has rejected the allegations.
The company’s stock has seen the biggest movement in shorting among index components, with more than 7% of the firm’s free float now out on loan, up 10-fold from Jan. 1. Offshore oilfield service provider Ezra Holdings is the most shorted name on SGX, with 10% of its shares on loan.
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