This morning, The Sydney Morning Herald suggested that when the short selling ban is lifted AMP, NAB, QBE and Wesfarmers are stocks that are “most likely to come under pressure”. If this is true, what on earth do hedge funds or short sellers know that the rest of the “long only” funds management industry, stock analysts, and shareholders do not? I’m sure the answer is nothing. These stocks are some of the most researched and widely held stocks by fund managers in this country and if they were seriously overvalued and warranted short selling then existing shareholders would be selling anyway.
Whilst equity markets may not be perfectly efficient, they are mostly efficient most of the time and adjust to news quickly. The biggest price drop amongst Australian stocks in many years occurred whilst the short selling ban was in place. The reality of hedge funds is that on average they are no more skilled than any “long only” fund manager so the likelihood of these stocks being short sold to significantly low prices is ludicrous. Equity prices will only be driven lower by worse than expected news on the company, sector, industry, and/or economy…not short selling alone!