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What the short-sellers have in their sights in 2017

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Trump, Brexit and the carnage in the bond market caused only fleeting moments of panic in the dash for trash that was 2016 – when stocks of any quality shot higher.

Being short was costly and painful in 2016. So it's with a serious dose trepidation that hedge funds attempt to pick the losers of 2017.

"Short-sellers really only have two choices here at the start of 2017 – stick or switch," says Chad Slater of Morphic Asset Management.

That is, they can bet that what went up in 2016 will come down – such as resource stocks – or position for the trends that were set in motion last year to continue.

Slater says that at the moment his fund is leaning towards a continuation in the rally of global cyclical stocks that have surged since the US presidential election and are reducing their shorts at the margin.

"There are still too many funds that are positioned long quality and large caps that are hoping the problem goes away."

But he's still bearish on the prospects of major Australian blue chip retailer Woolworths, which may be worth shorting if its stock rises.

Slater says Woolworths may be reporting higher revenues but it's not clear yet whether this has translated into higher earnings, and the structure of the recent sale of its petrol station network to BP, which he described as a "quasi capital raising", may be a sign they may need cash.

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