Money managers under the microscope
Indebted companies – short or long?
Hedge funds and other investors are shorting stocks laden with the biggest debts, according to stock lending research group DataExplorers, betting they may struggle to refinance themselves.
They also rank 1st and 4th respectively in Dataexplorers’ ‘Negative Sentiment’ (DNS) indicator, which is highlights where stock out on loan — usually used for shorting — has been highest and is rising.
In Europe, meanwhile, Itinere Infraestructuras and Grupo Ferrovial are among the top ten firms with the biggest net debt to equity ratios, and rank 8th and 15th in Dataexplorers’ DNS score.
In the U.S., Caterpillar and Autozone are in the top ten for debt ratios and rank 40th and 44th on the DNS, while in Japan debt-heavy Kintetsu, Japan Airlines and Odakyu Electric Railway rank 9th, 12th and 13th on the DNS score.
“This reflects recent concerns about banks failing to lend, or to roll over existing loans, as well as the capacity of some companies to service debt from current revenues,” the paper says.
This bet by many funds is in stark contrast to the view expressed by Crispin Odey, who earlier this year pointed to the start of a new bull market and who recently told clients he sees the best opportunities in “prodigal” companies.
“I still find myself coming out of meetings with companies whose share price is up fivefold since January and wanting to fill my boots,” he enthused.
“But it is quite a narrow field. It encompasses companies that at one stage looked like they would be denied refinancing but have now secured it.”