Short Sellers Under Fire in Australia as RBA Spurs Stock Rally

  • Banks lead gains after ANZ results, RBA interest-rate cut
  • Bearish bets on Aussie bank stocks surged since end of 2015

Short sellers in Australian bank stocks won’t want to remember Tuesday.

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The Reserve Bank of Australia’s afternoon decision to cut interest rates to a fresh record low spurred a rally in Sydney-listed bank shares, among the country’s most beaten down stocks this year. The industry was already buoyed in the morning on Australia & New Zealand Banking Group Ltd.’s plans to shrink the lender’s Asian business further and write down the value of some of its assets.

Levels of short interest in the so-called Big Four lenders climbed more than 40 percent since the start of the year through last week amid concern regulation will constrain growth at the companies that make up about one third of the Australian equity market. Gains Tuesday were amplified as some traders scrambled to reduce bearish positions.

“The market had just become so gloomy that when things aren’t as bad as expected, we get these sudden sharp moves higher,” James Audiss, Sydney-based senior investment adviser at Shaw and Partners, which manages about A$10 billion, said by phone. “Interest rates coming down makes equities more attractive and the Aussie equity market is well supported. It’s positive for the moment.”

Shares of Commonwealth Bank of Australia, National Australia Bank Ltd., Westpac Banking Corp. and ANZ, the country’s four-biggest lenders, which all release results this month, were down at least 8 percent this year through Monday.

Westpac on Monday reported first-half profit that narrowly missed estimates. ANZ CEO Shayne Elliott said on Tuesday he aims to cut the capital allocated to institutional and international business and redeploy it into higher-return retail and commercial businesses in Australia and New Zealand.

RBA Governor Glenn Stevens and his board lowered the overnight cash rate target by 25 basis points to 1.75 percent Tuesday. Data last week showed quarterly deflation in the consumer price index and the weakest annual gain on record for core inflation, which the central bank aims to keep between 2 percent and 3 percent on average.

CBA shares climbed 3.7 percent, the most since October 2011, while NAB closed 3.8 percent higher in Sydney. ANZ surged 5.6 percent and Westpac advanced 2.3 percent. The S&P/ASX 200 Index gained 2.1 percent, its largest jump since Feb. 18.

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