Hedge funds build up short bets on VW again

Date: Wednesday, August 19, 2009
Author: Laurence Fletcher, Reuters

Hedge funds have increased their bets on a fall in voting shares in Europe's biggest carmaker Volkswagen, according to data on Tuesday, despite the heavy losses suffered by such funds last year.

Hedge funds shorting VW (VOWG.DE) were caught out in October when VW shares more than quadrupled after Porsche announced it had effective control of 74.1 percent of VW.

This left less than 6 percent tradeable in the market and saw funds scrambling to cover their positions.

Nevertheless, figures from Dataexplorers on Tuesday show that stock out on loan -- a good indication of short interest -- for VW's ordinary shares has doubled in the past month to 2 percent of total issuance.

The free float of ordinary shares in VW, which is set to merge with Porsche (PSHG_p.DE), is relatively low at around 10 percent, due to large holdings by Porsche and the German state of Lower Saxony, while Qatar Holding company is poised to take a stake.

Shorting means betting on a lower price for a security in the future.

VW shares traded at around 168 euros on Tuesday, whereas most analysts rate the shares much lower. BHF Bank has a target price of 80 euros, for instance.

According to Dataexplorers, nearly 30 percent of the total VW shares available to borrow are now out on loan, making it the second most heavily-borrowed stock in the DAX on this measure, sales manager Alex Hofmann told Reuters.

During October's short squeeze this figure rose as high as 70 percent, he said.