March 3, 2020 / 5:30 PM / 3 months ago

Short positions on UK stocks jump amid coronavirus, Brexit fears

FILE PHOTO: A broker works on the trading floor at IG Index in London, Britain January 14, 2016. REUTERS/Stefan Wermuth

LONDON (Reuters) - Short positions reported to Britain’s regulator hit a four-month high in February amid rising concerns about the spread of the coronavirus and fears the UK could fail to clinch a free-trade deal with Brussels, a Reuters analysis of regulatory filings found.

In February, 865 short positions were reported to the Financial Conduct Authority (FCA), with 298 filed last week alone, the highest week in more than a year of data, showed an analysis of the filings.

Global stock markets experienced their worst weekly losses since the 2008 financial crisis between Feb. 24 and Feb. 28 with investors fearing the disease could send the world into recession.

“The coronavirus crisis has weighed a lot. The FTSE 100 is very exposed to China and emerging markets,” said Emmanuel Cau, head of European equity strategy at Barclays, noting another factor at play.

“Brexit risk perceptions have rebounded in the UK since the beginning of the year with investors starting to understand that the EU trade negotiations will be complicated and the chances of a no-deal are high,” he added.

Hedge funds “short” a company’s stock when they expect the price will fall. They carry out the trade by borrowing its shares from an institutional investor, such as a pension fund, and selling them back at a profit when they lose value.

Firms in the UK are under a regulatory obligation to report all changes to short positions once they surpass a threshold of 0.2% in a company but make those public once they hit over 0.5%.

GRAPHIC-Shorts in UK stocks: here

Reporting by Maiya Keidan and Julien Ponthus, additional reporting by Josephine Mason; Editing by Lisa Shumaker

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