Short Sellers Unaffected by Drop in Shares
VinFast Auto stock has once again experienced a decline, but this does not necessarily mean that short sellers are reaping substantial profits. The number of shares shorted remains relatively low, and there are valid reasons for this.
On Thursday, shares of the Vietnamese electric vehicle (EV) maker dropped by 15.9% to $34.71. Meanwhile, the S&P 500 saw a slight decrease of 0.2%, and the Nasdaq Composite recorded a modest gain of 0.1%. This marks the third consecutive decline in VinFast's stock value, with shares currently down approximately 63% from a high of $93 reached earlier in the week.
As a result of these declines, VinFast's market capitalization now stands at around $81 billion, positioning it as the fifth most valuable automaker globally, trailing behind industry giants such as Tesla (TSLA), Toyota Motor (TM), Porsche (P911. Germany), and BYD (1211. Hong Kong).
(At its peak of $93 per share, VinFast's stock was valued at an impressive $215 billion.)
Interestingly, this rapid decline has not benefited short sellers much. Short sellers typically borrow shares they do not own and sell them, anticipating a price drop to repurchase the shares at a lower cost later on. However, in VinFast's case, the number of shares sold short is minimal. According to Ihor Dusaniwsky, the managing director of short selling research firm S3 Partners, VinFast's short interest amounts to just $4.9 million, with 119 thousand shares shorted.
Despite the drop in stock value, it seems that short sellers are not positioned to profit significantly from VinFast's situation.
The Challenges Faced by Short Sellers in VinFast Trading
With the short interest in VinFast shares being extremely high, the potential profits for traders have proved to be modest, standing at less than $7 million over the past three days. According to Dusaniwsky, there are only limited amounts of stock available for borrowing, ranging between 20,000 and 30,000 shares at a fee range of approximately 350%.
Short sellers face the challenge of actually finding shares to borrow. At times, there may be none available for borrowing. Additionally, when shares are borrowed, short sellers typically have to pay a fee for the privilege. A 350% borrow rate implies that short sellers would have to pay an annual interest rate of 3.5 times the stock price to the original shareholder. In essence, it is comparable to an APR (Annual Percentage Rate) for short selling.
Such steep borrow rates significantly eat into the potential profitability of short sellers' positions.
Given the combination of low short interest, high trading volumes, and only a fraction of VinFast's 2.3 billion outstanding shares accessible for trading (with Pham Nhat Vuong controlling more than 99% of VinFast stock through Vingroup), it becomes evident that stock market profits and losses are merely transferred from one trader to another.
Automotive investors must exercise caution when navigating through these trading conditions. It is important to anticipate a decline in trading activity, which will eventually lead to a more favorable environment for purchasing shares based on fundamental analysis. For other market participants, the VinFast trading phenomenon remains simply captivating to observe from a distance.
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