Short sellers of a2 Milk shares have been caught with their pants down after favourable research has seen its share price push on to another record high.
The dual-listed alternative milk company and infant formula company is often targeted by short sellers - particularly in Australia where the practice is more widespread.
Short selling is the sale of a share that the seller has borrowed.
The short seller profits if the share price declines by picking it back up later at a lower price, but when the market turns in the stock`s favour, the shift higher can make the move more dramatic than it would do otherwise, triggering a short covering rally.
By close of trading, shares in New Zealand`s biggest company by market capitalisation were trading at $15.77, up 54 cents or 3.55 per cent, having rallied by more than 4.2 per cent on Monday.
The stock has rallied by about 22 per cent in the last 12 months and has been a key factor behind the New Zealand share market`s record-breaking run.
"It`s been a reasonably heavily shorted stock so it looks like some short sellers have seen the research, bitten the bullet, and covered their shorts, which normally contributes to a bit of share price reaction," Oyvinn Rimer, senior research analyst at Harbour Asset Management said.
"I don`t think the short selling story is particularly material, but it might add some extra momentum to a share price in the event of positive news," he said.
UBS - in a first quarter update on China`s infant formula market - said the big players Danone, Nestl and Abbott have seen their bestseller market shares decline, but that a2 Milk had had positive momentum for another quarter.
The analysis was based on online B2C (business to customer) data (15-20 per cent of the market). Trends might be different in other channels," UBS said.
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