Short Sales in Nintendo Hit Six-Year High After Monday Fall

  • Short sale positions hit highest level since 2010 on Tuesday
  • Capital Group sold about $750 million of shares last week

Product Delay Weighs on Nintendo's Shares

Short sellers in Nintendo Co. are betting the decline in the company’s stock isn’t over.

Short-sale positions jumped to 4.9 percent of the company’s free-float shares as of Tuesday, the highest in six years, according to research firm IHS Markit. That’s equivalent to a roughly $1.3 billion bet that the stock price will decline.

The increase in short positions came even after the stock dropped 18 percent on Monday. Investors dumped Nintendo shares after the company said on Friday evening that financial impact from worldwide hit Pokemon Go will be "limited." Prior to the correction, shares had more than doubled after the mobile game’s release in early July.

“Traders including hedge funds are saying that, as even the company has said impact to bottom line won’t change any forecast, the price will go back to where it was before the run up,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. Shares are still trading more than 40 percent above their level at the games release, which “will tempt more people to go short,” he said.

Separately, Nintendo’s largest shareholder, Capital Group Cos., said it trimmed its stake last week, just as shares traded near their apex. The Los Angeles-based firm cut its holding to 15.9 percent from 18.5 percent over several days in sales worth about $750 million. Capital’s sale does not necessarily signal a loss of confidence in Nintendo. Some fund managers tend to sell shares after rallies and buy them after plunges, in a practice called portfolio rebalancing.

Nintendo’s shares fell 6.9 percent as of 1:39 p.m. in Tokyo, bringing their decline this week to more than 25 percent. Nintendo reported a quarterly loss on Wednesday that was wider than analyst expectations as profitability was dragged lower by sluggish demand for Wii U consoles and a stronger yen. Shares have fallen on uncertainty over how much the Kyoto-based company will benefit from Pokemon Go.

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