GameStop Mania Has Europe's Hedge Funds on the Run

The trading frenzy that’s seen shares in video games retailer GameStop Corp. climb eightfold this month has burned investors who’d been betting against the stock. With the Robinhood crowd championing other unloved U.S. companies, hedge funds in Europe are growing wary of maintaining their positions in the most shorted shares here, producing violent moves that threaten to destabilize markets.

While the dynamic here is different, lacking the Reddit-inspired day traders who seem to be running U.S. stock markets, the effects are similar: Some of Europe’s most unfancied shares are jumping as short sellers take some risk off the table. Three examples follow.

More than 27% of the stock of the U.K. cinema chain is shorted, according to data compiled by IHS Market Ltd. Hedge funds betting against the shares include Citadel Advisors LLC, which had a net short position of 0.5% of the stock outstanding as of Jan. 22, and Marshall Wace LLP, which reported a net short of almost 0.6% on Jan. 15. The biggest position belongs to New Holland Capital LLC, which manages $20 billion from New York and reported a 2.84% short in November.

With the U.K. in lockdown for most of last year, Cineworld lost about 70% of its value. On Wednesday, the shares climbed as much as 21% to reach their highest level since June. In early trading, the volume of shares changing hands was five times its 20-day average.  

Investors have taken short positions worth almost 15% of the shares of the Paris-based shopping mall operator, according to IHS data. BlackRock Inc. had a 1.73% short on the stock as of Jan. 22; other self-reported short sellers include Maverick Capital Ltd. with 1.69% and Marshall Wace with 0.59%.

The shares, which dropped by 46% in 2020, climbed as much as 22% Wednesday to a seven-month high. The number of call options traded jumped to 11 times the 20-day average earlier this week.

The French car-rental company defaulted on its debts last month. Short positions are worth more than 11% of the stock outstanding, according to HIS data. The short sellers are led by Helikon Investments Ltd.’s 3.58% position as reported in mid-December, with Pictet Asset Management disclosing a net short of 0.57% earlier this week.  

The stock, which has declined by 80% in the past 12 months, jumped as much as 20% Wednesday.

Now, there may be investors out there who reckon Cineworld’s screens will flicker back into life quicker than previously expected, once mass vaccinations end the pandemic and patrons are lured back to buying popcorn and fizzy drinks at its picture houses. There may similarly be optimists about a swift revival of Europcar’s prospects for renting cars to adventure-starved holidaymakers, or Klepierre’s ability to weather internet shopping’s onslaught against brick-and-mortar retailers.

But none of these battered companies has reported fresh information this week that would inspire investors to lace up their buying boots. Rather, short sellers in Europe have seen how badly their counterparts in the U.S. have been hurt by the onslaught of buying of out-of-favor shares — and how those with the most potential for short-covering to accelerate the rally have been targeted the hardest — and they’re scrambling to take some chips off the table.

I’ve argued in the past that short sellers fulfil a vital function in capitalism. If the retail crowd is allowed to continue to disrupt the normal functioning of finance, markets will be the poorer for it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

©2021 Bloomberg L.P.

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