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By Danilo Masoni
MILAN, Jan 27 (Reuters) - Some of Europe's most shorted
stocks saw huge price swings on Wednesday with drugmaker Evotec
leading the pack on market chatter about Melvin Capital
Management being forced to unwind its bearish bets after some of
its investments turned sour.
Evotec surged as much as 30% in Frankfurt at one
point as traders rushed into a stock where the U.S. hedge fund
headed by Gabriel Plotkin has built a 6.2% short position.
Melvin is likely to have lost several million dollars on its
bearish bets on GameStop after the U.S. videogame
retailer jumped seven-fold since mid January.
Other heavily shorted stocks like publisher Pearson
, cinema chain Cineworld and commercial
property firm Unibail saw their shares spike, too,
while battery maker Varta and video game firm CD
Projekt - other two Melvin shorts - also rose strongly.
Their moves echoed the frenzy surrounding GameStop where
amateur investors' buying has sent the stock sky-rocketing this
week, leaving short sellers like Melvin 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 of
the latest market trends," said Banor SIM head of equities
Angelo Meda.
"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," added Milan-based Meda.
Shares in Evotec on Tuesday later pared most of their gains
but remained highly volatile. By 1117 GMT the stock was up 1.1%
on the day, having already jumped 10% on Tuesday.
A German trader said Evotec's spike in was linked to
speculation on online forum Reddit about troubles at the hedge
fund, which earlier this month agreed on a $2.75 cash infusion
that is expected to help stabilise its finances.
Varta, in which Melvin has a 4.35% bearish bet, was last up
1.3% and CD Projekt added up 6%. Pearson gained 9.7%, Cineworld
surged 13% and Unibail was up 14%.
Short sellers typically bet against stocks of companies that
they view as outdated in their business models or otherwise
overvalued.
(Reporting by Danilo Masoni; editing by Thyagaraju Adinarayan
and Angus MacSwan)
Pearson (PSON)
