(Repeats Monday story to additional subscribers with no changes
to text)
By Tom Westbrook and Alun John
SINGAPORE/HONG KONG, Oct 12 (Reuters) - Short selling has
declined this year as hedge funds ditch bets against a
relentless, stimulus-driven stock market rally, prompting a drop
in income for asset managers and brokers involved in such
trades.
Figures from research firm DataLend showed stock lenders'
revenue tumbled almost 15% in the year to Sept. 30 from 2019
while revenue for the September quarter alone was $1.8 billion,
the lowest in the four years of comparable records.
That drop, led by declines in Asia and the United States,
shows how an apparently unstoppable equities rally has caused
many hedge funds to reduce shorting, typically a crucial way of
earning market-beating returns.
"It's 'whatever it takes,' globally, and it is by far the
most frustrating rally for all our client base," said George
Boubouras, head of research, at K2 Asset Management, a Melbourne
based fund which invests worldwide.
"With so much liquidity from central banks it is a difficult
macro environment to run sustained short positions."
In one sign short interest has declined, the volume of units
of the index-tracking SPDR S&P 500 ETF on loan hit a
six-month low in mid September, data from research firm FIS
Astec shows.
Analysts and brokers say this trend means less liquidity for
traders and pressure on those who use stock lending revenue to
keep trading fees low.
Blackrock, for example, the world's largest asset
manager, earned roughly 6% of its $3.6 billion in quarterly
revenue from stock lending in the June quarter, while State
Street earned about 4% of its Q2 revenue.
"For Blackrock and others, a hit to securities lending
revenues is likely to be a pain point," said Stephen Biggar,
director of financial services research at Argus Research in New
York.
"The revenues generated were a big rationale for how fund
companies were able to lower their fees."
Blackrock declined to comment ahead of reporting earnings on
Tuesday.
NO SPECIALS
A large driver of the drop in revenues this year is the lack
of "specials," crowded short-seller targets that can net lenders
good fees, said DataLend director Nancy Allen.
Last quarter, the top five fee earners, German battery maker
Varta, electric truck maker Nikola, cruise
line Carnival Corp, cannabis producer Canopy Growth
and drugmaker Inovio earned lenders $120
million, DataLend said. That was less than half what the top
five made a year earlier.
To be sure, short interest has not totally evaporated, with
some $2.2 trillion of stock globally on loan, Allen said, while
rising share prices have powered other revenue streams for
lenders and brokers.
But market participants warn reduced short-selling could
have other consequences.
"Lending and short-selling activity are important to the
health of the market ecosystem as a whole," said Stuart Jones,
chairman of industry body the Pan Asia Securities Lending
Association. "Without them, you start to lose liquidity and a
corrective force that can counter more exuberant prices."
(Reporting by Tom Westbrook in Singapore and Alun John in Hong
Kong; Editing by Sam Holmes)