In the share market some hedge funds or traders bet on the share prices of particular companies falling by short selling them.
To do this they borrow the stock from a prime broker (usually on the asset servicing side of an investment bank) to sell on market in the expectation they can buy it back later at a cheaper price to profit from the difference.
Of course short sellers can often be spectacularly wrong, but if a share is heavily short sold it should at least cause investors to ask why this may be even if they disagree with the thesis and are "long" the stock.
So let's take a look at 5 heavily shorted (10% plus of shares on issue) shares on the ASX right now. All data accurate as at January 9 2019.
Orocobre Limited (ASX: ORE) owns the Olaroz lithium mining tenement in Argentina with plans to invest heavily in it to lift lithium production. It has 13.4% of its shares shorted as speculators presumably bet against lithium demand and prices.
Nextdc Limited (ASX: NXT) is a high-flying data centre business that has 12.2% of its shares shorted. It's also investing heavily in new data centres in Sydney and Melbourne, while trading on a high multiple of historical profits. Speculators could be betting against it for any number of reasons including rising competition from the likes of Amazon Web Services (AWS) or just on valuation grounds.
Galaxy Resources Limited (ASX: GXY) is another lithium miner with a huge 17% of its stock shorted. Some traders seem pretty much convinced it's in for a fall.
Invocare Limited (ASX: IVC) is the funerals business that saw its shares slump around 40% in 2018 on the back of slowing growth and the prospect of rising competition from cut-price competitors. Some hedge funds are betting on more falls with 12.9% of its shares sold short.
BWX Limited (ASX: BWX) is the business behind the Sukin beauty products that is optimistically forecasting a far stronger second half to fiscal 2019. Some traders are expecting more share price falls with 12% of its stock sold short.
