Short Sellers Target Manufacturing Stocks as Supply Chain Risks Increase
By Nell Mackenzie and Sophie Kiderlin
Hedge Funds Increase Short Bets Amid Geopolitical Tensions
Impact of Strait of Hormuz Tensions on Manufacturing Stocks
LONDON, July 16 (Reuters) - Global hedge funds bet heavily against manufacturing stocks in June, data from Hazeltree shows, as investors grew more concerned about supply-chain disruption from renewed tensions around the Strait of Hormuz.
A re-escalation of attacks by the U.S. and Iran has cast doubt on an interim deal to help end the war. Hopes of a normalisation of shipping traffic through the waterway had previously lowered commodity prices and lifted shares in manufacturing companies.
U.S. Response and Market Reactions
By Tuesday, U.S. President Donald Trump had reimposed a naval blockade of all Iranian ports and threatened to hit power plants and bridges next week unless Tehran resumed negotiations.
Short Selling Trends in the Manufacturing Sector
Hedge funds shorted - or bet against - more manufacturing stocks than those in any other sector in June, according to the Hazeltree data released on Wednesday.
The most June top picks for hedge fund short bets, where speculators wager that a stock price will fall, were those in the manufacturing sector, the Hazeltree data showed. This was three higher than in May.
Key Companies Targeted by Short Sellers
That cohort includes companies that rely on imported components, such as Canadian Solar, Japanese carmaker Toyota and Puma, according to the Hazeltree data, which is based on figures from 600 asset managers tracking 16,000 global stocks.
The companies did not immediately respond to Reuters requests for comment.
Economic and Supply Chain Risks
Expert Insights on Market Vulnerabilities
"If the Iran war isn’t resolved soon, there is a clear risk of global economic disruption, which is bad news for manufacturing companies given they are economically sensitive," Daniel Coatsworth, head of markets at AJ Bell, said.
The war has driven up oil prices and reignited concerns about interruptions to tanker movements. Even without a complete closure of the strait, heightened risk has raised insurance, freight and commodity costs.
Rising Transportation and Freight Costs
"Other potential risks to manufacturing profit margins are greater transportation costs if shipping-route disruption leads to higher freight rates which then spreads across the shipping industry," Coatsworth said.
Shipping Disruption Data
Before the war began on February 28, around 90 to 110 vessels passed through the strait daily, but flows collapsed by more than 90% at the height of the disruption, LSEG data shows.
Global Supply Chain Stress
"In terms of things like freight rates, even those routes which don't really go near the Middle East ... you're seeing sort of supply chain stress," Andrew Simms, a senior equity analyst at Berenberg, said.
"The route from Shanghai to L.A., for example, the freight rates there have more than doubled in the past few months."
Definition of Manufacturing Sector
Hazeltree designates a stock sector by the primary economic activity of the firm. Manufacturing includes any company engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products.
(Reporting by Nell Mackenzie and Sophie Kinderlin; Editing by Amanda Cooper and Alison Williams)
