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Why Asos, Boohoo and Kingfisher are the most shorted UK stocks

Asos, Boohoo and Kingfisher were three of the most shorted FTSE 100 stocks in the year-to-date (through mid-August), as the fast fashion retailers’ suffer as a result of greenwashing claims and the DIY retailer struggles due to rising inflation and supply issues.

Online fashion retailers Asos [ASC.L] and Boohoo [BOO.L] as well as B&Q and Screwfix owner Kingfisher [KGF.L] were three of the most shorted FTSE 100 stocks in early August, according to the latest data from the Financial Conduct Authority (FCA).

The FCA publishes a daily list of the current short positions taken by hedge funds and investment firms. By combing through the data investors can identify which stocks and sectors short sellers are targeting and use this to guide future investment decisions.

The last time Opto looked at the data was back in early June and at the time Cineworld [CINE.L] was the most shorted due to liquidity challenges and a looming court case with Canadian cinema chain Cineplex [CGX.TO]. There were also big bets against consumer spending stocks with Currys [CURY.L] and Naked Wines [WINE.L] appearing in the top 10.

Short sellers increase bets against Naked Wines

Two months on and both Currys and Naked Wines remain in the top 10 list. The electrical goods company has seen little change, with the proportion of its float being shorted falling from 5% in June to 4.9% as of 11 August. The wine retailer, however, has seen an increase from 5% to 5.7%.

Cineworld’s short float has dropped from 8.23% to 7.5%. Overtaking it — and claiming top spot — is Kingfisher, rising from 6.8% in June to 7.8%. Short interest in Asos has increased slightly from 6.54% to 6.6%, while 7.2% of fellow online fashion retailer Boohoo’s shares are being shorted.

Others in the top 10, as of 11 August, include global investment firm abrdn [ABDN.L] (4.7%) and carbonated drink mixers supplier Fever-Tree [FEVR.L] (4.6%, down from 5.27% in June).

As energy bills continue to spiral out of control and inflation bites, it’s no surprise that consumer spending stocks continue to prop up the list of the most shorted FTSE 100 stocks. Yet, there are other factors that could be influencing firms to take up short positions against Asos, Boohoo and Kingfisher.

Asos and Boohoo struggle amid ESG investigation

The Asos share price has plunged 58.7% year-to-date (through 12 August), while shares in Boohoo have tumbled 48.6%. At the end of July, the UK Competition and Markets Authority (CMA) announced that it was investigating the companies over sustainable fashion claims. While this alone isn’t enough to put pressure on the two stocks, it could further weaken the investment case.

Simon Taylor, partner at Forensic Risk Alliance, told Investment Week earlier this month that companies found to be greenwashing are far more likely to lose consumer and investor confidence than those with a strong handle on environmental, social and governance (ESG).

Both companies are committed to ESG. Asos hopes to achieve net zero across its operations in 2025 and Boohoo is targeting a 52% reduction in carbon emissions by 2030 as well as all materials being sustainable. Even if the CMA investigation comes to nothing, ESG ambitions, especially sustainable sourcing, will result in increased costs and, ultimately, higher prices that consumers might be reluctant to pay.

Asos and Boohoo have seen a rise in returns in recent months due to the cost of living crisis and both have warned of lower profits ahead. To offset this, Boohoo has introduced a £1.99 fee per return, which has angered many customers. The move should improve its margins, but possibly at the detriment of losing market share, warned Shore Capital analysts in a note to clients seen by Proactive Investors.

Inflation and supply issues weigh on Kingfisher

As for Kingfisher, its share price is down 23.8% year-to-date as of 12 August, and trading 7.3% above its 52-week low set on 16 June. Hedge funds reduced their short positions in the DIY retailer during the pandemic as lockdowns led to a renovation boom. But with house building activity showing signs of weakness, Kingfisher has seen a significant increase in short interest.

“We continue to effectively manage inflationary and supply chain pressures. Looking forward, we are reiterating our profit guidance for FY 22/23,” Kingfisher CEO Thierry Garnier said in the company’s first quarter trading update on 23 May. However, if short positions continue to be built then it could be a sign that hedge funds expect Kingfisher to lower its profit guidance, which would put pressure on its share price.

 

 

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