this is utterly irrational, page-13

End of short-sell ban a 'buy signal'

End of short-sell ban a 'buy signal'May 25, 2009 - 5:06PM
The lifting of an eight-month ban on short-selling of financial stocks is seen by market watchers as a sign of confidence in the return to stability of markets.

The Australian Securities and Investments Commission (ASIC) lifted the ban effective from the opening of trade today, a week earlier than expected, but warned it may reimpose it if necessary.

"The lifting of the ban is itself a sign that ASIC, the Reserve Bank of Australia and the government collectively believe that the crisis is now past the 'system-threatening' stage. That makes it more a buy signal than a sell signal,'' said Citigroup strategist Graham Harman.

The move sent shares of some banks and real estate investment trusts (REITs) that were included in the ban lower but analysts and dealers saw no lasting impact on the market from it, saying they had already seen their worst and were in a recovery phase.

"The whole thing's benign, and I expect it to be so,'' said George Kanaan, research sales desk head at UBS.

``It was a different world three or four months ago when people thought it was Armageddon. We've seen a massive recovery in financials globally, financials have been recapitalised. On top of that, you've seen a lot of short-covering globally as well in financials,'' Kanaan added.

Surprise factor

Macquarie Group, hit badly by short-selling last year, fell 6.5 per cent on Monday but the volume was not heavy.

The financials sector fell 2.3 per cent and the A-REIT sector fell 2 per cent, while the broader market was off 0.7 per cent.

"What people are saying is long term it shouldn't have an impact. It's just the surprise factor today,'' said Juliette Saly, an analyst at broker CommSec.

She added that many smaller investors did not understand the concept of short-selling and seeing the headlines about the ban being lifted might have panicked and sold out of the banks on Monday.

Short-selling involves borrowing shares from other investors and then selling them in the hope they will fall in price and can be bought back for a profit.

ASIC first barred short-selling of all stocks for 30 days in September, after the United States, Britain and other European nations did the same in an effort to stem the market meltdown.

It lifted the ban on non-financial stocks in November, but controversially extended it for financial stocks, including conglomerate Wesfarmers, which has an insurance arm, to May 31. The US ban was lifted last year and the UK lifted it in January.

ASIC "has reviewed market conditions and considers that the balance between market efficiency and potential systemic concern has now moved in favour of the ban being lifted,'' it said in a statement on Monday.

"ASIC will not hesitate to reimpose the ban immediately and without consultation if it considers market conditions warrant such action,'' it added.

Ban added to pressure

Critics have said the ban did little to stabilise the market for financial stocks, and added to pressure on those stocks that were not part of the short-selling ban.

Citi strategist Harman said the overseas appetite for opening new shorts that existed three months ago had faded with stronger Australian consumer sentiment, a better than expected housing market and a return of risk tolerance globally.

Listed property trusts would not suffer, even if investors were expecting the property trusts to raise new equity, as damage has already been done to their share prices and credit is still not available for many short sellers, Harman added.

Reuters