ASX is a JOKE reallysee what it says...i believe it strongly......But as is so often the case, S&P/ASX 200 inclusion tends to mark the peak in proceedings.
The imminent arrival of institutional owners means that more proxy advisers are called in to examine their corporate governance. And as we have seen time and again, they are aghast at what they find.
Meanwhile, index sensitive institutions (which aren’t always the passive funds) begin accumulating shares in these companies and make those shares available to hedge funds to borrow.
The hedge funds can finally act on their sceptical views by shorting the shares, when it was previously not possible or prohibitively expensive.
That’s exactly what happened in the case of Lake. Short interest ramped up dramatically in the lead-up to the index date, with 45 million shares sold short. Demand is so strong the fee to borrow is about 20 per cent a year.
Sometimes the analysis isn’t all that deep for traders that have seen this story before. One hedge fund said it shorted the shares purely because the company was buying adverts on Twitter – a surefire indication of an egregiously promoted stock.
