Short sellers are increasing their positions against Australian technology stocks, citing high valuations and persistent inflation, which could lead to interest rate hikes. According to David Allen from Plato Asset Management, the limited number of growth companies on the ASX is a key factor. Allen suggests investors seeking exposure to the global tech rally have concentrated on a few companies, inflating their valuations beyond what is fundamentally justified. This environment has created opportunities for short sellers, betting that share prices will decline.
Plato Asset Management has initiated short positions on companies like Catapult, a sports analytics company, and DroneShield, alongside data centre operator NextDC. Catapult, for example, has seen its stock price fall nearly 20 per cent since Plato initiated its short position in December. Allen also noted the tech sector’s high price-to-earnings ratio compared to its US counterparts, despite differences in quality between Australian and US tech firms. Catapult provides performance data and video analytics to elite sports teams and athletes, while DroneShield develops drone detection and countermeasure technology.
Increased short interest is also observed in Zip, with short positions more than doubling recently. Catapult and WiseTech have also experienced significant increases in short interest. Conversely, some fund managers see rising short interest as a positive sign, particularly if they hold a strong long-term conviction in a stock. They believe that short sellers will eventually need to cover their positions, potentially driving share prices higher, as was the case with lithium stocks.
Despite recent losses, some investors remain confident in the long-term prospects of select technology companies, viewing the increased short interest as a temporary phenomenon driven by short-term performance considerations. Tony Waters of QVG Capital welcomes high short interest in stocks they are confident in, as it can lead to significant gains when short sellers are forced to cover their positions.
