Short Sellers Lose 56 Trillion Won Amid Sharp Reversal in US and European Stock Markets

[Image source=Reuters Yonhap News]

With expectations of the end of monetary tightening, US and European stock markets recorded their largest gains in six months, causing significant losses for short sellers who had bet on a market decline.

According to financial information firm S3 Partners on the 22nd (local time), short sellers betting on declines in US and European stock markets last week (14th-17th) recorded a total book loss of $43.2 billion (approximately 56.3 trillion KRW). Hedge funds such as Samlyn Capital, Valyasi Asset Management, and Arrowstreet Capital were among those that suffered large losses.

These hedge funds focused their short selling on technology, healthcare, and consumer goods stocks that had sharply declined due to the impact of interest rate hikes. For example, Carnival Cruise Line, a US cruise operator, rose 14% over the past week, causing short sellers losses amounting to $240 million. SBB, the largest real estate company in Northern Europe, saw its stock price plunge 75% this year due to the collapse of commercial real estate, but rebounded about 33% in the past week, dealing a blow to short sellers.

Emmanuel Cow, Head of European Equity Strategy at Barclays, said, "Short sellers who had heavily bet on high-interest-rate victims were caught off guard by the painful market rebound that even lifted the stock prices of low-quality companies," adding, "This is due to growing market confidence that the US Federal Reserve's rate hike cycle has finally come to an end."

Representative indices in the US and Europe rebounded sharply over the past week, reaching their highest levels since April. The S&P 500 and Nasdaq indices rose more than 3-4% over the week since the 14th. The indices have increased by 11% and 13%, respectively, over the past month. During the same period, the Euro Stoxx 50 index also surged more than 7%.

The market sentiment sharply reversed on the 14th following the announcement that the US Consumer Price Index (CPI) for October had significantly slowed. Economic indicators such as the US CPI and core CPI inflation rates came in below market expectations, leading to analyses that the burden of high interest rates had eased. The October CPI rose 3.2% year-on-year, below the market forecast of 3.3%, and the core CPI inflation rate was 4.0%, also below the forecast of 4.1%.