By Danilo Masoni
MILAN (Reuters) – Drugmaker Evotec led sweeping price swings in some of Europe’s most shorted stocks on Wednesday in an echo of the retail trading fever that has gripped the United States.
The U.S. market moves have put piled pressure on professional short sellers, who sell shares on the expectation that they will fall and can be bought back more cheaply later.
Positions held by New York-based hedge fund Melvin Capital Management, which has a 6.2% short on Evotec, have come under particular scrutiny and shares in the drugmaker rose by 30% at one point during the trading day in Frankfurt.
The fund led by Gabriel Plotkin is likely to have lost millions of dollars on video game retailer GameStop after a seven-fold rise in its shares.
Other heavily shorted stocks such as British publisher Pearson, cinema chain Cineworld and commercial property firm Unibail-Rodamco also saw their shares spike, without any clear reason and no link to Melvin.
Battery maker Varta and Polish video game firm CD Projekt, two Melvin shorts in Europe, also rose strongly on Wednesday, further extending this week’s gains.
The moves echo the frenzy surrounding GameStop where buying by amateur investors has sent the stock sky-rocketing, leaving short sellers scrambling to cover their positions.
“This is one of the extremes we’re seeing these days on markets which are flooded by a huge mass of liquidity and where unprofessional investors are ready to jump in the deep end,” Banor SIM head of equities Angelo Meda said.
“Usually it doesn’t last long but we don’t really know. I don’t rule out we could see other crazy things over the next few days,” Milan-based Meda added.
Evotec shares pared most of their initial gains but remained highly volatile and by 1517 GMT the stock was up 4.4% on the day, having already jumped 10% on Tuesday.
A spokesman said Melvin had closed out its GameStop position. Melvin declined to comment on its European positions.
“Melvin Capital has repositioned our portfolio over the past few days. We have closed out our position in GME (GameStop),” the spokesman said in a statement.
Varta, in which Melvin has a 4.35% bearish bet, was up 5% and CD Projekt added 6%. These stocks rose 14% and 20% respectively in the previous two sessions.
Pearson gained 11%, Cineworld 9.5% and Unibail 10%.
“The need of some funds to cover the shorts combined with the increasing weight of quantitative strategies, has created a snowball effect,” Michele Pedroni, senior portfolio manager at Decalia in Geneva, said.
IHS Markit data shows Cineworld, Pearson, Evotec and Unibail are among the top 12 most shorted stocks in Europe, with more than 12% of their outstanding shares currently on loan.
Among other top-twelve top shorts are medical device maker Ambu, whose shares also joined the rally, while oil company Premier Oil, the most shorted stock in Europe with 21% out of loan, escaped the trading frenzy.
Graphic: GameStop contagion in Europe – https://fingfx.thomsonreuters.com/gfx/mkt/nmopaobompa/Gamestop%20contagion%20in%20Europe.JPG
(Reporting by Danilo Masoni; Editing by Thyagaraju Adinarayan, Angus MacSwan and Alexander Smith)
