By Tom Westbrook and Alun John
SINGAPORE/HONG KONG, Oct 12 (Reuters) – Short selling has declined this year as hedge funds ditch bets against a relentless, stimulus-driven stock market rally, prompting a drop in income for asset managers and brokers involved in such trades.
Figures from research firm DataLend showed stock lenders’ revenue tumbled almost 15% in the year to Sept. 30 from 2019 while revenue for the September quarter alone was $1.8 billion, the lowest in the four years of comparable records.
That drop, led by declines in Asia and the United States, shows how an apparently unstoppable equities rally has caused many hedge funds to reduce shorting, typically a crucial way of earning market-beating returns.
“It’s ‘whatever it takes,’ globally, and it is by far the most frustrating rally for all our client base,” said George Boubouras, head of research, at K2 Asset Management, a Melbourne based fund which invests worldwide.
“With so much liquidity from central banks it is a difficult macro environment to run sustained short positions.”
In one sign short interest has declined, the volume of units of the index-tracking SPDR S&P 500 ETF SPY.P on loan hit a six-month low in mid September, data from research firm FIS Astec shows.
Analysts and brokers say this trend means less liquidity for traders and pressure on those who use stock lending revenue to keep trading fees low.
Blackrock BLK.N, for example, the world’s largest asset manager, earned roughly 6% of its $3.6 billion in quarterly revenue from stock lending in the June quarter, while State Street STT.N earned about 4% of its Q2 revenue.
“For Blackrock and others, a hit to securities lending revenues is likely to be a pain point,” said Stephen Biggar, director of financial services research at Argus Research in New