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Profits to reap in selling yourself short

By Michele Simpson

Friday 20th October 2000

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Canny investors have found a way to turn a profit from our flagging sharemarket.

Selling a stock and then buying it back at a lower price - short-selling - is relatively unheard of here but has recently started attracting more investors, especially those scalping Telecom and Fletcher Forests stocks.

Fletcher Forests has been as high as $1.30 but sank to about 38c after the Commerce Commission knocked back Shell's bid to buy Fletcher Energy.

Telecom, which used to account for a third of the value of the Stock Exchange, has also been on a steady beat downward since May when the share price was over $8.50 - it has since dipped to $5.30.

The Stock Exchange recently opened up short-selling to all traded stocks rather than just limiting it to those in the NZSE40, which has dropped 13.9% since January.

In Australia, the US and the UK short-selling is a well-known practice. Overseas there has been a frenzy of short-selling with technology stocks.

Ord Minnett manager of security lending Tony Vincent said short-selling might provide much needed liquidity for the Stock Exchange - a reason given by offshore investors for not putting money in New Zealand stocks.

Not many broking firms here offer short-selling to their clients because they have to be big enough and carry enough capital to buy the stocks first.

Clients who want to short-sell have to pay a 20% deposit to the broker first.

But the process of short-selling is still considered easier than buying an option on the New Zealand Futures and Options Exchange.

"Short-selling is definitely gaining momentum and I am sure more brokers will start offering the service," Mr Vincent said.

Simon Allen, chairman of the New Zealand Stock Exchange said short-selling had not been popular for brokers because of the tax implications.

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