Bears Back Down as Australian Earnings Beat Low Expectations

(Bloomberg) --

Bearish bets on equities Down Under have plunged to the lowest in almost three years, amid a flood of government stimulus and a better-than-feared profit season.

Total weighted short interest of S&P/ASX 200 index members was at 1.67% on Thursday, the lowest since November 2017, according to data compiled by Bloomberg and the Australian Securities and Investments Commission. Bearish bets have declined 25% since a coronavirus-triggered swoon in Australia’s benchmark index in March. The trend mirrors the U.S., where hedge fund data shows short positions on U.S. equities have nosedived to their lowest in 16 years.

Investors are less resistent to rising share prices as Australia is poised to unveil its largest budget deficit since World War II amid a raft of stimulus that is trying to combat a recession that may be the longest in almost four decades. This, coupled with an earnings season that has seen estimates beaten more than missed and the decision by pension funds -- including the A$80 billion ($57.9 billion) UniSuper -- to suspend their stock lending programs, has squeezed bears.

“Earnings expectations have been very low for some sectors so there was risk management heading into the reporting season, and so far we have seen quite a few big moves to cover shorts when results weren’t as bad as expected,” said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners Pty. The firm exitied some short positions in March.

Read: Australia’s Profit Season Shows Vigor Amid Virus: Morgan Stanley

The nation’s benchmark index lost about A$400 billion during the March sell-off as it took just 14 trading days to fall into a bear market from a record high. The S&P/ASX 200 has gained about 35% from the March 23 nadir as investors took advantage of cheaper valuations.

Still, the decline in shorts hasn’t helped the S&P/ASX 200 index, which has underperformed other markets globally amid a dearth of technology shares and a fresh virus outbreak in Victoria, its second-largest state. Per-share profit expectations for index members are down about 14% so far in 2020, and analysts expect only a 4% gain in the gauge over the next 12 months.

Consumer discretionary stocks are the most-shorted on the index, with travel agencies and retailers among the hardest hit by restrictions to contain the virus. Health care stocks are among the least shorted, according to data compiled by Bloomberg.

Webjet Ltd. is the most-shorted at 14.95%, while peer Corporate Travel Management Ltd. is at 12.13% of free float, the data show. A year earlier, Bellamy’s Australia Ltd. had the most bearish bets at 27.2%, followed by Inghams Group Ltd. at 24.6%.

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