The following is a discussion with ChatGPT delving deeper into some advanced concepts in short selling.

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Q1. I want to better understand the mechanics of short selling. Is it true that it involves an entity borrowing stock from another entity, paying them a fee for the privilege, selling them on the market and then buying them back and returning them to the lender at some future time?

Yes, that’s a solid high-level summary of how short selling works. Let’s break it down step by step with some additional details:

1. Borrowing the Shares

• A short seller (often a hedge fund or a trader) wants to bet that a stock’s price will decline.
• They borrow shares from a broker or institutional lender (such as a pension fund or mutual fund), who owns the shares.
• The borrower typically pays a fee (stock loan fee) to the lender for the privilege of borrowing the shares. This fee depends on how difficult the stock is to borrow (highly shorted stocks tend to have higher borrowing costs).

2. Selling the Borrowed Shares

• Once the shares are borrowed, the short seller immediately sells them on the open market, hoping to buy them back later at a lower price.
• The proceeds from this sale go into the short seller’s brokerage account, but they are often required to maintain margin collateral (a portion of the sale proceeds must be set aside as security).

3. Buying Back the Shares (Covering the Short)

• At some point in the future, the short seller buys back the shares on the open market.
• If the stock price has declined, they buy it at a lower price than they sold it for, locking in a profit.
• If the stock price has increased, they must buy it back at a higher price, resulting in a loss.

4. Returning the Shares to the Lender

• The short seller returns the borrowed shares to the original lender.
• The lender gets their shares back, along with any fees earned from lending them out.

Key Considerations:

• Margin Requirements: Because shorting involves borrowing, traders need sufficient margin (collateral) in their account.
• Unlimited Loss Potential: Since stock prices can, in theory, rise indefinitely, a short seller’s losses are theoretically unlimited.
• Short Squeeze Risk: If many traders are short a stock and it starts rising sharply, they may be forced to buy back shares to cover their positions, causing the price to surge further (this is called a short squeeze).
• Dividends and Corporate Actions: If a stock pays a dividend while being shorted, the short seller must pay the dividend to the lender. Stock splits, mergers, and other corporate actions can also impact short positions.

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Q2. Ok great. So my next question is this. Once the shares have been leant, does the lender no longer own the shares and hence no longer has any voting rights over those shares?

Yes, that’s correct. Once an entity lends out its shares for short selling, it temporarily loses ownership rights, including voting rights. Here’s how it works:

1. Loss of Voting Rights

• When an investor (e.g., a pension fund or mutual fund) lends shares to a short seller, they no longer own the shares during the loan period.
• This means they lose their right to vote on corporate matters (e.g., board elections, mergers, shareholder proposals) because they are not the registered owner of the shares at the time of voting.

2. Who Holds the Voting Rights?

• The short seller does not have voting rights either because they don’t intend to keep the shares—they are selling them.
• The new buyer of the shares (the person who buys them from the short seller) now owns the shares and gains the voting rights.

3. Can the Lender Recall Shares for Voting?

• Some lenders (especially large institutional investors) have agreements that allow them to recall their lent shares before key votes (such as takeovers or shareholder activism events).
• If they recall the shares, the short seller is forced to buy them back and return them before the vote.

4. Potential Market Impact

• In cases of contested votes, large-scale stock lending can reduce the influence of passive funds or institutional investors, shifting voting power to traders who may have different incentives.
• Activist investors sometimes try to borrow shares before a vote to influence corporate decisions, though regulations exist to prevent abuses.

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Q3. So if the shares were borrowed from say a pension fund, would those shares need to sit outside of a portfolio that may be tracking an index? I mean, if they have been sold, they’re no longer in alignment with the index, right?

Great question! Yes, when a pension fund (or any index-tracking fund) lends out shares, those shares are no longer in their direct possession, which could seemingly create a misalignment with the index they are tracking. However, funds have mechanisms to manage this and maintain index alignment.

1. Collateral Ensures Economic Exposure

• When an index fund or pension fund lends out shares, they typically receive collateral in return (usually in the form of cash or other securities).
• The fund still retains economic exposure to the stock even though it no longer physically holds the shares.
• If the stock price changes, the value of the fund’s assets (including the collateral) still reflects those changes, ensuring that the fund tracks the index effectively.

2. Securities Lending as a Common Practice in Index Funds

• Many index-tracking funds (like ETFs and pension funds) engage in securities lending as a way to generate extra income.
• The fees they earn from lending shares can offset tracking errors and even improve fund performance.
• To prevent any major tracking errors, they often lend only a portion of their holdings rather than all their shares.

3. Portfolio Management Strategies

• Some funds will use derivatives (such as futures or swaps) to maintain exposure to the index even if they have lent out shares.
• Others may hold back a percentage of shares (i.e., not lend all shares they own) to ensure they always have enough in their portfolio.

4. Does Lending Affect Index Tracking?

• In theory, lending shares means the fund no longer directly holds them, but in practice, the collateral + income from lending offsets the impact.
• The fund manager ensures that the portfolio remains in line with the index through careful lending policies.

5. What Happens if the Shares Are Recalled?

• If a fund needs to recall shares (e.g., for voting or rebalancing), it requests them back from the borrower, who must then return them.
• If the borrower can’t return them in time, the fund buys back shares on the market, which could introduce a small tracking error.

Bottom Line

A pension fund or index fund can lend out shares while still tracking the index, thanks to collateral and careful risk management. However, lending out too many shares could introduce tracking errors, which is why funds implement limits on how much they lend at any given time.

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Q4. Does it ever result in say an index fund buying more than the index weighting to then lend shares and to the degree that it brings them back to weight? I guess what I’m asking is, do some of the big ETF managers increase their holdings in underperforming stocks to satisfy demand from hedge funds to access shares to sell short?

Yes, that’s a sharp observation! While index funds generally aim to track their benchmark exactly, there are cases where large ETF and index fund managers might adjust their holdings slightly to take advantage of securities lending opportunities. Here’s how and why it happens:

1. ETF Managers Want to Maximize Lending Income

• Major ETF providers like BlackRock (iShares), Vanguard, and State Street (SPDRs) earn extra revenue from lending stocks to short sellers.
• If there’s high demand for shorting a particular stock (e.g., struggling companies, meme stocks, or highly shorted sectors), the stock’s lending fees can be quite lucrative.
• To capitalize on this, some ETF managers might slightly overweight these stocks, increasing their lending revenue while still maintaining acceptable tracking error.

2. How It Works in Practice

• Most index funds try to match the exact weightings of an index like the S&P 500, NASDAQ-100, or ASX 200.
• However, within their tracking strategies, they have some flexibility:
  • Full Replication: Buying all stocks in exact proportion (common in large, liquid indices).
  • Sampling: Holding slightly different proportions or a subset of stocks (used in less liquid markets).
• Some funds take advantage of this flexibility to increase their position slightly in highly lendable stocks.

3. Why This Matters for Underperforming Stocks

• When a stock is heavily shorted, hedge funds and traders need to borrow shares to execute their short trades.
• The fees on lending highly shorted stocks can be substantial (e.g., GameStop during the short squeeze, Tesla in the early days).
• If an ETF provider knows there is persistent demand for shorting a stock, they may hold a bit more than the index weight, earning lending fees that offset expenses and improve fund performance.
• This is especially tempting for passive ETFs with low management fees, where every extra basis point of return from lending is valuable.

4. Does This Affect Market Behaviour?

• If large ETFs overweight underperforming stocks just to lend them out, it could create a supply/demand imbalance, where more shares are available for shorting than natural buyers.
• This could potentially increase short interest and contribute to downward price pressure on already weak stocks.
• On the flip side, if a short squeeze occurs, ETF managers might recall their lent shares, forcing shorts to cover and driving prices higher.

5. Regulatory & Risk Considerations

• Index funds still need to closely track their benchmark, so they can’t deviate too much.
• There are regulatory limits on how much an ETF can lend out (often around 30% of holdings for U.S. ETFs).
• If they overweight a stock too aggressively and it drops further, they risk higher tracking error or liquidity issues.
• Some funds cap their securities lending exposure to mitigate risk.

Conclusion

Yes, some large ETF managers strategically adjust their holdings to take advantage of securities lending opportunities, particularly in underperforming stocks with high short-selling demand. However, they must balance this with tracking accuracy and regulatory constraints.

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Short Selling: Advanced Concepts

Introduction

Based on the characteristics identified in my article “Most shorted ASX Stocks 5/2/25” the following stocks look like they could be in the early stages of a shift in sentiment in the eyes of the short sellers. That could potentially signal price further price declines are to come.

Stock #1: Polynovo ASX:PNV

2025 estimated PER: 196.5 | Debt: Minimal | Cash: $46M | Operating Cash Flows: Just recently positive

Clearly the biggest concern for holders of this stock is the valuation. There is plenty of room for the stock to move lower and for the stock to still look expensive. As we’ve seen in the previous article, short-sellers like a big runway for the stock to potentially fall and they certainly have that with PNV.

 

Stock #2 Zip Co ASX:ZIP

2025 estimated PER: 77.7 | Debt: $2.4B | Cash: $125M | Operating Cash Flows: Just recently positive

Again there is plenty of valuation downside for ZIP. Unlike PNV, they also have an enormous debt balance. Growth in Australia was negative when they last reported while they continue to do well in the US. On a per share basis though, revenue growth has been slowing. As we saw in the previous article. the short sellers love highly valued stocks that are showing a slowing in growth. ZIP fits that criteria. Another concern is the recent 100% sell-down by founder Larry Diamond.

Stock #3 Lovisa ASX:LOV

2025 estimated PER: 29.3 | Debt: $359M | Cash: $35M | Operating Cash Flows: Very comfortable

This stock looks the least vulnerable on a fundamental basis. Valuation is high but acceptible considering the rate at this company has been growing since 2020 especially. Nevertheless, the short sellers are seeing something that has got them excited. I have seen some headlines suggesting there are some new competitors entering Lovisa’s market. If they were to take market share and reduce the growth rates of Lovisa, then a 30 PER will be much harder to justify.

Stock #4 Neuren Pharmaceuticals ASX:NEU

2025 estimated PER: 25.8 | Debt: None | Cash: $213M | Operating Cash Flows: Comfortable

The stock already has a lot of downward price momentum having fallen 42% in the past 12 months. While the short sellers have ridden the stock lower, increasing their positions along the way, they are still below 5%.While NEU has a great deal of potential, it also has its risks. The new administration in America and in particularly the new Health Minister add to the uncertainties. Drugs in development are great if they come-off but there’s always a chance they don’t. Sales of the their primary drug have been steadily increasing but there are other drugs being developed in the same field. The short sellers are showing no signs of going away yet.

Stock #5 Whitehaven Coal ASX:WHC

2025 estimated PER: 7.4 | Debt: $1.8B | Cash: $405M | Operating Cash Flows: Declining

Easy to look at WHC and think “surely they can’t go any lower”. That is until you realise they were actually loss-making in 2021 and pretty much had a break-even year in 2020. From 2012 to 2016 they flipped between small profits and small losses. $1.8B in debt is nothing to take lightly either. Add to that the fact that the coal price is in a well defined downtrend and it’s not hard to see why the short-sellers are increasing their bets against this company.

Coal Price

Conclusion: 5 Stocks with Rising Short Interest

While each of these stocks presents a unique set of risks and challenges, the common thread among them is their appeal to short sellers due to high valuations, slowing growth, or broader industry uncertainties. Polynovo and Zip Co stand out for their significant valuation risks, with ZIP further burdened by substantial debt and declining growth metrics. Lovisa appears more fundamentally resilient, but emerging competition may be fueling short interest. Neuren Pharmaceuticals carries the inherent risks of biotech investing, with regulatory uncertainties adding to short-seller concerns. Meanwhile, Whitehaven Coal’s declining cash flows and a weak commodity price environment make it a compelling target for bearish traders.

While short interest alone is not a definitive predictor of future price movements, it often signals underlying concerns that should not be ignored. Investors should carefully assess these factors and consider whether the risks highlighted by short sellers align with their own investment thesis.

 

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Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.

5 Stocks with Rising Short Interest

Stock #1: Select Harvests (ASX: SHV) – A Comeback Story

https://selectharvests.com.au/

 

Investment Thesis

1. Leading Position in a Growing Market
Select Harvests is Australia’s largest almond producer and the third-largest globally. The company operates extensive orchards across Victoria, New South Wales, and South Australia, positioning it well to capitalize on rising global demand for almonds, driven by consumer preferences for healthy and plant-based foods.

2. Operational Efficiency and Yield Improvements
The company has implemented strategies to enhance production volumes and cost efficiencies. Recent horticultural investments, such as frost protection measures, have led to significant yield improvements and cost reductions. A 32% production increase was achieved through expanding almond-bearing acreage and a 23% yield increase.

3. Favorable Industry Dynamics
Global almond consumption has grown by 6-8% annually, fueled by health-conscious consumers and the shift toward plant-based diets. Additionally, California’s ongoing water scarcity issues (responsible for 80% of global almond supply) may constrain future production, potentially benefiting Select Harvests.

4. Positive Outlook and Strategic Initiatives
Despite recent weather-related challenges, Select Harvests maintains a positive crop outlook. The company focuses on:
✅ Enhancing orchard yield and quality
✅ Securing water resources
✅ Reducing operational costs
✅ Exploring new growth opportunities

5. Financial Position and Capital Management
The company maintains a strong balance sheet and has undertaken capital-raising initiatives to support expansion. A recent AU$80 million capital raise will help boost processing capacity and operational efficiencies.

📌 Summary: Select Harvests’ leading market position, operational efficiencies, favorable industry trends, and strong financial management make it a compelling investment opportunity.

LA Wildfires – Industry Impact

The recent Los Angeles wildfires have not directly impacted almond production, as the primary almond-growing regions in California’s Central Valley lie north of LA. However, wildfires contribute to broader environmental challenges affecting agriculture statewide.

Key concerns include:
🌱 Severe drought conditions – 100% of Los Angeles County is drought-affected, with December 2024 ranking as the 10th driest month in 130 years.
🌱 Almond trees’ high water requirements – Prolonged drought may reduce yields and quality.
🌱 Smoke exposure – Research shows wildfire smoke can negatively impact nut production.

📌 Conclusion: While the LA fires themselves are not an immediate threat, ongoing drought conditions and climate concerns pose challenges to California’s almond industry.

Stock #2: GenusPlus Group (ASX: GNP) – In the Right Place at the Right Time

https://www.genus.com.au/

Investment Thesis

1. Strategic Positioning in Growth Sectors
GenusPlus operates in power and communications infrastructure, uniquely positioned to capitalize on Australia’s investment in:
⚡ Renewable energy projects
⚡ Battery Energy Storage Systems (BESS)
⚡ Power transmission modernization

Its expertise in engineering, procurement, and construction (EPC) gives it a competitive edge in Australia’s energy transition.

2. Strong Financial Performance
📈 FY24 net profit: $19.3M (up from $13.4M in FY23)
📈 EPS rose to 10.8 cents, reflecting efficient operational execution and expansion

3. Major Contract Wins
GenusPlus has secured high-value contracts, including:
✅ 600MW/1,600MWh BESS project for Melbourne Renewable Energy Hub (~$200M)
✅ Defense infrastructure contract ($16M) for Shoalwater Bay

4. National Expansion and Diversification
Originally focused in Western Australia, GenusPlus has expanded nationally via acquisitions and organic growth. New Queensland branches and diversification into defense infrastructure enhance its market reach.

5. Experienced Leadership & Insider Confidence
🚀 Managing Director David Riches has made significant insider share purchases, reinforcing strong confidence in the company’s outlook.

📌 Summary: GenusPlus’ positioning in high-growth sectors, solid financials, major contracts, national expansion, and strong leadership support a compelling investment thesis.

Stock #3: Kina Securities (ASX: KSL) – Growth, Income & Value

https://investors.kinabank.com.pg/Investors/

Investment Thesis

1. Diversified Financial Services Portfolio
Kina Securities operates in banking, finance, and wealth management, serving PNG’s growing financial sector.

2. Strong Financial Performance
💰 P/E ratio: 6.87
📈 Return on Equity (ROE): 16.8%

3. High Dividend Yield
📊 7.7% dividend yield, making Kina a strong income play.

4. Market Position in PNG
🏦 Second-largest banking institution in PNG with strong local brand recognition.

5. Digital Transformation Strategy
📲 Investment in digital banking, mobile services, and fintech partnerships strengthens competitive positioning.

📌 Summary: Kina offers a blend of growth, income, and value, supported by strong financials, high dividends, and strategic digital investments.

Stock #4: Evolution Mining (ASX: EVN) – Undervalued Compared to Peers

https://evolutionmining.com.au/

Investment Thesis

1. Strong Asset Portfolio & Operational Excellence
🌍 Top-tier mining assets: Cowal, Ernest Henry, Northparkes, Mungari, and Red Lake
📈 FY24 net profit: $422M
🏅 Gold production: 716,700 oz | Copper: 67,862 tonnes

2. Growth & Diversification
🛠 80% stake in Northparkes boosts copper output by 50%
🔀 Copper now 30% of total revenue (reduces reliance on gold)

3. Financial Strength & Shareholder Returns
💰 $716M liquidity | Gearing down from 33% to 25%
💵 Final dividend doubled to 5 cents per share

📌 Summary: Evolution’s diversified asset portfolio, strong financials, and strategic copper expansion make it undervalued relative to peers.

Stock #5: Cuscal Limited (ASX: CCL) – A New Listing with a Low Valuation

https://www.cuscal.com/

Investment Thesis

1. Payments Infrastructure Leader
🏦 Key player in Australia’s payments ecosystem | Connects banks, fintechs, and corporates.

2. Competitive Moat
🔒 Only non-major bank offering end-to-end payment processing.

3. Strong IPO & Financial Performance
📊 FY24 revenue: $284.5M (+18%) | Net profit: $32.9M
📈 IPO raised $337M for growth and system enhancements.

4. Expansion & Growth Potential
🚀 Investing in regulated data services & market share growth.

📌 Summary: Cuscal’s dominance in payments, strong IPO, and growth strategy make it a potentially attractive long-term investment.

 

Final Thought: 5 Stocks Offering Growth and Value

In a market where growth, resilience, and strategic positioning define success, these five ASX-listed companies showcase compelling investment cases across diverse sectors. From Select Harvests’ potential almond industry tailwinds to GenusPlus’ role in Australia’s energy transition, each presents a unique opportunity backed by strong fundamentals. Kina Securities offers a rare mix of value and income, Evolution Mining is leveraging its copper expansion for long-term upside, and Cuscal’s payments infrastructure dominance sets it apart as a fresh listing with strong potential. While risks remain, particularly with external factors like climate change and economic conditions, these companies may just have the strategies in place to navigate challenges and capitalise on emerging opportunities.

 

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Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.

5 Stocks Offering Growth and Value

Introduction

The aim of this Short Selling Case Study ASX:ACL is to examine what happens when the market shifts against short-sellers in a heavily shorted stock. Many investors follow stocks with high short interest because, if conditions improve, the unwinding of short positions can fuel a sharp rally. But what causes these reversals, and how can investors recognize the signs early? Let’s take a look at Australian Clinical Labs (ASX: ACL) as a case study.

Short Squeeze?

I wouldn’t go so far to label this as a short-squeeze, but more of an aggressive exit. For context, a short-squeeze occurs when short sellers become trapped due to a dramatic increase in demand for a heavily shorted stock. [refer to my article on short-selling for two examples of a short-squeeze].

In the case of ASX:ACL, business conditions have improved but not substantially and not in a way that is really surprising. The short sellers would have anticipated that this would happen one day and appear to have been ready to react. They were not trapped nor overwhelmed by buyers. Nevertheless, this “orderly” rally still saw the share price jump 50% in the space of around 2 months.

Australian Clinical Labs (ASX:ACL)

ACL was a big winner during COVID-19, benefiting from high demand for pathology testing. However, as pandemic-related testing volumes declined, so did earnings and investor confidence.

The decline in earnings in 2023 and 2024 was flagged to cease in the companies full-year results in August 2024. An increased dividend and a share buy-back were also positive for shareholders and negative for anyone that had sold the stock short.

It is clear that the share price reversed when that became apparent. It has also coincided with the short sellers aggressively cutting their short positions from over 10% to less than 2%. In 6 months, the share price is up over 50% as a result.

Conclusion

When a heavily shorted stock begins to recover, the resulting price movement can still be substantial, even without a full-blown short squeeze. In the case of Australian Clinical Labs (ASX: ACL), short-sellers were not caught off guard, but they still acted quickly to unwind their positions. This more orderly exit helped drive a 50% share price increase in just a few months.

However, this example also reinforces the discipline of short-sellers. They are rarely caught by surprise and often time their exits well, as seen with ACL. As discussed in my top 20 most shorted ASX stocks analysis, they tend to be right far more often than they are wrong.

📌 Key Takeaway:
Short interest can be a valuable signal, but not every stock with high short interest will experience a squeeze. Instead, investors should watch for signs of improving fundamentals, corporate actions, and short covering to gauge potential opportunities. The biggest moves often come when short-sellers exit in unison, whether gradually or in a rush.

 

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Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.

Short Selling Case Study ASX:ACL

The top 20 ASX companies with the highest short-sold positions:

Source: https://stocksunderthehood.com/asx-most-shorted-stocks/

Let’s examine why a significant percentage of these companies’ shares are being shorted, indicating that traders are betting on their share prices falling.

Uranium (BOE, PDN & DYL)

Boss Energy (BOE): Medium term, share price falling, Shorts rising

Paladin (PDN): Medium term, share price falling, Shorts rising

Deep Yellow (DYL): Medium term, share price flat, Shorts rising

Nuclear demand is supposed to be increasing right? Uranium is a great investment right?

The blue line in the chart represents the spot uranium price, which has fallen 33% from its peak. This may surprise some, as much of the commentary around uranium has been bullish. However, the short positions in these three uranium stocks are simply following the trend in uranium prices.

Lithium (PLS, MIN, LTR)

Pilbarra Minerals (PLS): Medium term share price falling, short positions falling

Mineral Resources (MIN): Medium term share price falling, short positions rising

Liontown Resources (LTR): Medium term share price falling, short positions flat

The same can be said for Lithium (blue line). Mineral Resources has had some other issues which some would like to blame for the fall in share price. That may or may not be the case but it’s clear they have been swimming against they tide of a falling Lithium price.

Adriatic Metals (ADT)

Medium term share price rising, short positions flat

Silver prices are up, and so is ADT. So why is there a large short position? Without a deep analysis, one possibility is that short-sellers anticipate a capital raise. ADT currently has $59M in cash and $176M in debt, which is concerning given their negative cash flows.

Genesis Minerals (GMD)

Medium term share price rising, short positions falling

Similar to ADT, Genesis Minerals’ share price has been rising, largely in tandem with the gold price. A couple of years ago, the company set ambitious growth plans, which came with significant execution risks, making it an attractive target for short-sellers. However, over time, they have successfully delivered on their strategy. As a result, short positions have steadily declined over the past 12 months.

Karoon Energy (KAR)

Medium term share price falling, short positions rising

Oil prices have been in a downtrend since April 2024, and Karoon’s share price has followed suit, with short positions rising. Textbook shorting strategy.

Syrah Resources (SYR)

Medium term share price down, short positions flat

The graphite market has been pressured by increased Chinese synthetic supply. SYR has $81M in cash and $221M in debt, with no cash flows, making it an ideal short-selling candidate.

Lynas Rare Earths (LYC)

Medium term share price flat, short positions flat to down

This one is more complex, but its 9% short position cannot be ignored. The key rare earth element, Neodymium, has remained flat in 2024. LYC also trades at a high price-to-earnings ratio (PER) of 40, which is steep for a cyclical resource company. That valuation is likely what attracts short-sellers.

Dominos Pizza (DMP)

Medium term share price down, short positions up

A fallen angel. Once a market darling, DMP is now struggling to find growth in Australia and its expansion into Japan has been challenging. With $1.4B in debt, it’s easy to see why short-sellers are betting against it.

IDP Education (IEL)

Medium term share price down, short positions flat

Another fallen angel. A former high-flyer, IEL has struggled to find growth in recent years, much to the delight of short-sellers.

The Star Entertainment Group (SGR)

Medium term share price down, short positions up

The well-documented problems at The Star, combined with a significant debt burden, have made it a prime target for short-sellers. The share price chart resembles those of companies that ultimately went bankrupt. Can they turn it around, or will they meet the same fate?

Megaport (MP1)

Medium term share price down, short positions up

Same story as IEL—a former market darling that has been re-rated as growth slowed.

Lifestyle Communities (LIC)

Medium term share price down, short positions up

Yet another high-flyer that has fallen back to earth as growth has slowed.

Johns Ling Group (JLG)

Medium term share price down, short positions up

Another fallen angel that got ahead of itself before being re-rated when growth rates slowed substantially.

Cettire (CTT)

Medium term share price down, short positions up

Similar to JLG, re-rated as growth slowed.

Corporate Travel (CTD)

Medium term share price up, short positions up

After a big fall, CTD shares have been rallying. However, short positions remain high. Valuations are now more realistic, and the balance sheet looks healthy. Will short-sellers be forced to cover, or will CTD disappoint the market?

Droneshield (DRO)

Medium term share price down, short positions up

Balance sheet is safe after two large capital raises at peak prices, but profitability remains uncertain. Their latest cash flow report suggests profitability is still a long way off.

Key Observations

• 11 of the 20 are resource stocks
  • 3 uranium stocks
  • 3 lithium stocks
  • 1 silver stock
  • 1 gold stock
  • 1 oil stock
  • 1 graphite stock
  • 1 rare earths stock
• 8 of 9 non-resource stocks are fallen angels

Short-Seller Strategy

✅ Target resource stocks when the underlying commodity price is in a downtrend.
✅ Short high P/E companies once growth expectations fail to materialize.
✅ Focus on businesses with high debt, especially those that may need to recapitalize or risk default.

Conclusion Most Shorted ASX Stocks 5/2/25

Taking a long position in the most shorted ASX stocks as of 5/2/25 requires strong conviction. So far, short-sellers have executed their strategy exceptionally well. Genesis Minerals (GMD) stands out as the only major exception, where they may have got it wrong.

Their success rate remains impressive, especially with the ASX near all-time highs. However, nothing lasts forever. At some point, a few of these companies will recover, and when they do, large short positions could fuel a sharp and sustained rally.

 

 

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Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.

Most Shorted ASX Stocks 5/2/25

Sector: Basic Materials | Industry: Other Industrial Metals & Mining | Website: https://www.south32.net

Commodity Analysis

Profits for S32 were generated from the following commodities in 2024:

In their latest quarterly result, S32 received higher prices for most of their commodities:

In January trends have remained overall favourable:

Aluminium – having a very strong start to the year

Copper – also a strong start to the year, despite the falls of the last two days.

Silver

Zinc – a lot of these charts look similar, bouncing to start the year.

Lead – while the chart is ugly, it’s up for January

Manganese – like lead, ugly chart but up to start the year

Coal – the one drag at present

Broker Positioning

Market forecasts are for a return to growth in 2025 and 2026. These numbers can change quickly though. If the moves in the commodities as shown above continue, analysts will need to update their numbers which could see some upgrades come through.

Valuation Model

Valuation is a tricky game with highly cyclical companies like S32. Nevertheless, my model suggest there is some value at present in S32 with a reasonable margin of safety.

Technical Analysis

The price chart shows a decline from recent highs throughout November on lower than normal volume. This is consistent with the fall in many of their commodities during the same period. Prices have started to move higher in January and the commodity charts above support this. The 3EMA have not crossed as yet but look poised to do so. The only ingredient missing so far is an increase in volume.

Short positions have been falling since the middle of last-year. This perhaps suggests that the short-sellers believe the worst is over for S32.

Final Word

S32’s performance in early 2024 has been influenced by favourable trends across most of its key commodities, with aluminium and copper leading the way, while coal remains a drag. Market forecasts anticipate a return to growth in the coming years, though these projections are subject to change based on commodity price movements. From a valuation perspective, the company appears to offer some margin of safety despite the cyclical nature of its business. Technically, the stock has shown early signs of recovery in January, though a confirmed upward trend may require stronger volume. Additionally, the decline in short positions since mid-2023 suggests improving sentiment among investors.

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Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.

Cutting Through The Noise: ASX:S32