Stocks in Singapore are being shorted now more than ever in recent history as investors and speculators alike seek to gain from weak profits of companies exposed to China, which faces a sagging economy, and/or the energy sector which is suffering from low oil prices.
Although Singapore, unlike larger stock markets such as Hong Kong and the United States, has never been a haven for short sellers because of the Singapore Exchange’s (SGX) comparatively smaller size, the presence of short sellers surged in the first half of 2015.
According to data from Markit, a financial services firm based in the United Kingdom, the amount of short positions in the Singapore stock market increased by around 25% this year with almost 1.2% of companies’ free float shares out on loan compared with 0.9% in December of 2014.
Global Issues Lead More to Short Singapore Stocks
The jump in shorting interest can be attributed to a slowing Chinese economy along with a decline in oil prices. Harsh statements from several different research firms toward Noble Group have also made investors short Singapore stocks in general.
Muddy Waters Research said that Noble Group “exists solely to borrow and burn cash,” leading to the company’s stock reaching an 18 month low. Iceberg Research issued its first report in February alleging that the firm had inflated asset values. Noble shares have fallen by around 40% since the beginning of 2015.
“Perhaps the short-selling in Hong Kong and China has influenced the Singapore market,” said Markit analyst Relte Stephen Schutte, noting that shorts have been primarily targeting companies that are under investigation over their accounting standards and corporate governance.
A recent example of a company shaken by investigations into their accounting practices is Hanergy in Hong Kong. “That could be filtering through into other APAC (Asia-Pacific) regions. It’s difficult to say where the SGX is going in the future.”
The Straits Times Index’s 30 largest stocks attracted more interest from short sellers than the SGX as a whole, with an average of 1.5% of their shares on loan – still a low number when compared with global standards. Businesses in the energy and manufacturing sectors were among the most popular for shorts.