Fund managers tap into short selling amid market volatility

PETALING JAYA: More fund managers are poised to jump onto the short-selling bandwagon amid the current volatile market environment.
An industry player who declined to be named said he observed that many fund managers have taken advantage of the heavy sell-off, and the short-selling quantum is expected to increase if the current volatility in the market continues.
"The fund managers have a wide range of portfolios on hand. They can't unload their holdings immediately, they also don't want to miss the boat, so this (short selling) is one of the ways," he told SunBiz recently.
He noted that even big local institutions are involved in short selling of shares to make some profits. "The sentiment is quite negative given the uncertainty in the stock market. In the current situation, the people don't see a clear economic direction."
Therefore, for some investors, the timing of the liberalisation of short selling does not seem to be "right" judging from the bumpy trading. Retail investors might be getting the short end of the stick if they were to short sell stocks for the time being.
Bursa Malaysia, which opened up regulated short selling to a wider group of investors last April, has suspended the short selling of a number of stocks since the general election on May 9, after which the equity market has lost some 3.89% on domestic factors, in particular the scrapping of mega projects, and fears over a global sell-off arising from Italy's political crisis, and US flip-flopping on trade tariffs.
The recent fluctuating equity market has been accompanied by active short selling evidenced by trading value exceeding the RM100 million mark on two days a fortnight ago, according to statistics of the stock exchange.
The short-selling trading value stood at RM168.67 million and RM127.55 million on May 28 and May 30, respectively, when the market came under strong selling pressure. Notably, the FBM KLCI sank as much as 66.33 points or 3.74% on May 30 as renewed US-China trade tensions and Italy's political crisis sparked market concerns.
Despite that, another analyst said the less sophisticated retail investors are not very keen to participate in short selling at the moment.
On the suspension limit of 15%, he said the level is considered reasonable, giving leeway before a margin call is triggered during a market downturn.
"The 15% drop limit can cushion the margin call, the investors could stand by money in the event of any huge sell-off," he explained.
According to Bursa Malaysia, a total of 280 stocks can be short sold currently and the list is reviewed every six months.
Bursa Malaysia CEO Datuk Seri Tajuddin Atan said in April the introduction of intraday short selling to a wider group of investors is timely given the growing sophistication of market participants. It is also part of the strategy to boost market liquidity and improve flexibility for market participants.