Experts warn of short-selling tsunami as SET uptick rule expires
The value of short sales is expected to hit Bt1 billion daily after the Stock Exchange of Thailand (SET)'s uptick rule expires on Thursday (October 1). Stocks in businesses related to tourism and consumption will be vulnerable to short-selling due to their high valuation and weak profit forecasts.
Nuttachart Mekmasin, deputy managing director at Trinity Securities, said short-selling is not a worry when the SET valuation is not high.
"However, the index valuation is currently high, so we expect stocks with a high valuation and weak profit forecast to face short sales, especially in tourism businesses such as hotels and airports as their price will reflect profit in the next few years.”
He said short-selling would also hit consumption-related firms such as retail and telecommunication businesses.
He predicted short sales will hit Bt1 billion daily because the SET’s valuation was not as high as before the Covid-19 outbreak.
"Daily short sales will total Bt3 billion to Bt5 billion daily when the SET valuation is very high," he added.
Koraphat Vorachet, director of research and investment at Capital Nomura Securities, said the SET's new zero-plus tick rule would not trigger uncertainty among investors as the market is still relying on its fundamentals, and internal and external factors.
However, he predicted the short-sales value will return to a normal level of Bt3 billion to Bt3.5 billion daily, up from Bt400 million to Bt500 million daily.
"On Wednesday [September 30], investors sold stocks to reduce risks and accommodate the impact of the zero-plus tick rules on the market because the market situation is currently gloomy," he said.
An analyst at Asia Plus Securities forecast volatility from a fivefold increase in short sales after the zero-plus tick rules come into effect.
"Our research on triggers of short sales risk, such as high valuation … found that seven companies are at risk of short-selling – Airports of Thailand (AOT), Minor International (MINT), Home Product Center (HMPRO), Com7 (COM7), KCE Electronics (KCE), Delta Electronics (DELTA) and PTT Global Chemical (PTTGC)," he said.
"Meanwhile, eight stocks will be able to escape short sales risks, namely Asia Sermkij Leasing (ASK), MCS Steel (MCS), Noble Development (NOBLE), Sri Trang Gloves (STGT), Infraset (INSET), Dynasty Ceramic (DCC), Nawarat Patanakarn (NWR) and Workpoint Entertainment (WORK)."
SET president Pakorn Peetathawatchai said he was not interested in using old short-sales rules because volatility was currently low, unlike the situation in March and April this year when volatility was high due to the Covid-19 outbreak.
"The SET is monitoring factors that affect trading to improve regulations for the current situation, so there is no need to change regulations in the short term," he said.
