Short selling of European car stocks is at a two-year high, making the sector one of the most heavily shorted in Europe, as traders bet slowing growth will hurt even the continent’s profitable producers.
Short sellers sell stock they do not own, betting that they can buy it back later at a lower price. A company with more than 3 per cent of its shares out on loan is considered to have unusually high short interest.
An average of 3.8 per cent of shares in carmakers on the Stoxx 600 index were out on loan last week, compared with 2.7 percent across the Europe-wide index, according to Markit.
The figure, which represents a 50 percent increase in short interest over the past year, highlights worries that the sector is overvalued.
The main focus of concern is the eurozone debt crisis and the impact it has had on the profit margins of mass-market carmakers such as Peugeot and Fiat that are most exposed to the eurozone.
Pressure to slash prices amid fierce competition recently prompted Sergio Marchionne, chief executive of Fiat, to characterise the situation as a “bloodbath”.
Short interest in Peugeot has doubled over the past year and 14.3 per cent of its shares are out on loan. Over the same period the shares have more than halved in value.
“Peugeot became a bit of the default short,” Philippe Houchois, UBS autos analyst said.
“If you want to go long on a car stock like BMW , you need something to be short. Peugeot screams the most obvious choice,” he added.
Analysts fear slowing growth in China is beginning to have an impact on Europe’s more resilient carmakers.
One strategist at a London-based hedge fund said that slowing car sales in China since the beginning of the year had raised alarm bells.
“A big concern for us would be the exposure these companies have to China,” he said.
“If you look at the data over past couple of months, they [car companies] are discounting more in terms of the prices they charge and that is going to hit their margins.”
Volkswagen , the German carmaker that boasts a stable of luxury marques such as Audi, Bugatti and Bentley, as well as low-cost Skoda, has come to the attention of short sellers.
Despite recently bucking the trend with forecast-beating first-half financial results, about 3.8 per cent of its shares are out on loan.
So far, luxury carmakers such as Porsche and BMW have evaded the scrutiny of short sellers.
However, one analyst warned that if these companies were forced to revise down financial forecasts for this year, their shares would begin to look expensive.