by Chris Becker
You know when a potential bottom is in when talk of “speculation by short-sellers” hits the front pages of the business mainstream media.
From The SMH (via Bloomberg):
Fortescue Metals, the world’s fourth-biggest exporter, is the second most-shorted company on the country’s S&P/ASX 200 Index. The BetaShares S&P/ASX 200 Resources Sector ETF, an exchange-traded fund tracking Australian raw-material companies, was the most shorted among all securities listed on the country’s exchange, according to most recent data from the Australian Securities & Investments Commission, the market regulator.
Short-interest as a percentage of freely available shares of Perth-based Atlas Iron was a record 20 per cent on September 8, according to data compiled by Markit.
Fortescue saw short interest peak last month at 18 per cent of tradable shares, the most in a year, the data show.
Alas, I must admit I was one of them (not at the moment, whilst blogging here at MB, I don’t trade shares) but it was almost a duty to do so, as long opportunities were restricted to the over-valued and stretched banks and a few AUD-exposed industrials.
Of course, on the broker side of the market, the consensus is one of knife catching, I mean finding value:
…(shorting) stands in stark contrast with commodity analysts, who predict a iron ore rebound by year-end.
“The sentiment towards iron ore is ridiculously bearish,” said Peter Esho, a Sydney-based managing partner at 100 Doors Investment Management. “There’s an absence of balance in the market and nobody really knows where the iron ore price will bottom. In some of these names, there’s a really good opportunity to get in.”
Iron ore will climb back to $US100 a tonne by the end of this year, according to the median of 13 analyst estimates compiled by Bloomberg. The lowest estimate was for $US90. That’s 13 per cent higher than the current price.
“The fundamentals for iron ore really haven’t changed, they have been impacted by short term sentiment,” said Giulio Casello, chief executive officer of Sundance Resources, which is developing an iron-ore project in central Africa.
“There’s still a need for China to urbanise 300 million people in the next 15 years. The need for iron ore to make steel is going to continue and we’d expect that the market will stabilise.”
Stabilise doesn’t mean a return to bubble like 3 digit prices. Like any other commodity, there will be extended periods of bearishness and bullishness, with prices shooting to the upside and to the downside beyond “normal expectations”.
To expect otherwise is to disregard the entire history of market price discovery. And to blame short sellers for structural woes is all too easy.