US hedge funds are increasingly targeting ASX-listed companies, with NexGen Energy recently becoming the latest target of an activist short seller campaign. NexGen Energy is a $9.5 billion uranium explorer. The company focuses on developing uranium projects, aiming to become a leading supplier in the global market.
The uranium explorer was the subject of a report by Culper Research, which alleged its production forecasts were “impossible to achieve”. Hours earlier, Grizzly Research forced weapons manufacturer Electro Optic Systems into a trading halt after raising questions about a major customer. Electro Optic Systems specialises in advanced technologies for the aerospace, defence, and security sectors, including directed energy weapons and space surveillance systems. These actions followed a November report by Spruce Point Capital Management targeting IperionX, questioning the commercial viability of the rare earths junior.
Fund managers suggest the rise in short reports is due to inflated valuations in ASX sectors that heavily rely on management promises. MST strategist Hasan Tevfik noted that a sharp rally in unprofitable companies makes them vulnerable to bad news and short positions. QVG Capital’s Chris Prunty added that activist short sellers often target vulnerable, early-stage, and promotional businesses.
The Australian Securities and Investments Commission (ASIC) published guidelines in 2021 to mitigate market disruption caused by activist short sellers, including encouraging them to moderate emotive language. Despite Australia’s defamation laws, the recent reports indicate the ASX remains an appealing target for hedge funds seeking opportunities in speculative companies with high valuations.
