When investors decide to short a share they are borrowing shares to sell on market with the aim of buying them back at a cheaper price in the future. While it can be a lucrative investment strategy, it does comes with high risks and theoretically limitless losses.
Whilst short sellers don't always get it right, I believe investors should be wary about investing in shares with high short interest as it could be interpreted as an early warning sign of a share price decline.
According to the most recent data provided by ASIC, these are the 10 most shorted shares on the ASX:
- Orocobre Limited (ASX: ORE) remains the most shorted share on the ASX with a massive 19.5% of its shares in the hands of short sellers. The market appears increasingly bearish on the lithium miner following a sharp cut to its annual production guidance.
- Western Areas Ltd (ASX: WSA) isn't far behind with short interest of 18.4%. With nickel prices likely to remain subdued for some time to come, the leading nickel producer looks set for a tough year.
- Aconex Ltd (ASX: ACX) has seen short interest rise slightly to 17.8%. Once its short interest reduces I think this software-as-a-service company could be a great buy and hold investment.
- Syrah Resources Ltd (ASX: SYR) has seen short interest rise again to 15.1% despite recently announcing that the commissioning of its Balama graphite project was on schedule.
- Quintis Ltd (ASX: QIN) has 13.9% of its shares held short. The sandalwood plantation manager, formerly known as TFS Corporation, has recently been targeted by U.S. short sellers.
- Myer Holdings Ltd (ASX: MYR) has seen short interest drop sharply to 13.7%. With a takeover offer potentially in the works for the department store operator, it appears short sellers are closing their positions in a hurry.
- Vocus Group Ltd (ASX: VOC) has seen short interest remain flat at 11.6%. As I have said previously, the short interest is a concern but at the current share price I think the telco company provides investors with a compelling risk/reward.
- Nine Entertainment Co Holdings Ltd (ASX: NEC) has 10.8% of its shares held short, up slightly since last week. The media company's share price has climbed 18% in the last month.
- Domino's Pizza Enterprises Ltd. (ASX: DMP) has 10.7% of its shares held short. Short sellers appear to be targeting the pizza chain operator following allegations that franchisees may be mistreating and underpaying employees.
- Metcash Limited (ASX: MTS) has 10.2% of its shares in the hands of short sellers. This is the third week in a row that short interest has remain steady.
