Concerns over Europe are causing more and more equity investors to hedge their bets with options, especially now in emerging markets. Even though the iShares MSCI Emerging Markets Index rose 84% since March 2009, options on emerging market stocks are indicating the same global meltdown fears infecting other markets.
For the month of September, Bloomberg reports that the spread between implied volatility for three-month options on the iShares MSCI Emerging Markets Index, and the SPDR S&P 500 ETF Trust (SPY) has doubled to 13.19. It reached 14.92 on September 26, the highest level since June 2009.
"The fear of a second Lehman is clearly affecting all markets," Schroders' Nicholas Field said in a Sept. 23 telephone interview with Bloomberg. "The more the fear persists and there is no resolution to the underlying issues in Europe, then the more selling of any risk assets will occur."
The MSCI Emerging Markets Index fell 12% last week, and on September 26 it hit its lowest level in two years.
Options traders are becoming nervous about emerging markets, but what about institutional investors and short-sellers?
To help you explore this idea, we collected data on short trends and institutional money flows for a list of about 160 emerging market stocks.
All of the stocks mentioned below have seen a sharp increase in shares shorted coincide with significant institutional selling -- is this extreme pessimism warranted?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. Companhia Brasileira de Distribuicao (NYS: CBD) : Operates as a retailer of food products, clothing, home appliances, and other products through its chain of hypermarkets, supermarkets, specialized and department stores, convenience stores, and the Internet in Brazil. Net institutional sales in the current quarter at -6.4M shares, which represents about 7.59% of the company's float of 84.31M shares. Shares shorted have increased from 3.69M to 4.74M over the last month, an increase which represents about 1.25% of the company's float of 84.31M shares.
2. E-Commerce China Dangdang (NAS: DANG) : Operates as a business-to-consumer e-commerce company in the People's Republic of China. Incorporated in China. Net institutional sales in the current quarter at -2.0M shares, which represents about 6.22% of the company's float of 32.13M shares. Shares shorted have increased from 8.66M to 9.34M over the last month, an increase which represents about 2.12% of the company's float of 32.13M shares.
3. Harbin Electric (NAS: HRBN) : Engages in the design, development, manufacture, supply, and service of electric motors in the People's Republic of China and internationally. Incorporated in China. Net institutional sales in the current quarter at -3.0M shares, which represents about 20.72% of the company's float of 14.48M shares. Shares shorted have increased from 8.14M to 9.43M over the last month, an increase which represents about 8.91% of the company's float of 14.48M shares.
List compiled by Eben Esterhuizen, CFA.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen does not own any of the shares mentioned above. Written by. Institutional data sourced from Fidelity, insider data sourced from Yahoo! Finance.
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