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Professional investors have taken large short positions in a bunch of companies, betting that the share price will fall. These stocks are among them and the situation appears grim.

Bets against the retail sector have strengthened after falls today for the two most shorted stocks in the FTSE 350 index - B&Q owner Kingfisher (LSE:KGF) and fast fashion chain ASOS (LSE:ASC).

Five hedge funds with short positions accounting for over 7% of Kingfisher today saw the DIY giant trade at its lowest level since July 2020 at 227.7p, having fallen by a third this year.

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ASOS, with about 6.5% of its stock out on loan to seven funds, has lost more than 70% of its value in 2022 and is trading at levels not seen for a decade amid toughening conditions. Its AIM-listed rival Boohoo Group (LSE:BOO) is another target, with more than 8% of its shares held short.

Short-selling is where an investor borrows a stock and then sells it on the market in the belief that it can be bought back at a much lower price later on. The high degree of uncertainty over the UK economy continues to provide an attractive environment for the shorting of retail stocks, with just under 2% of the sector’s market capitalisation out on loan.

FTSE 250-listed Currys (LSE:CURY), whose shares have more than halved to 61.5p since November, is the fifth most-shorted company in the FTSE 350 index.

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One of the London market’s most shorted companies of recent times has been Cineworld Group (LSE:CINE), but most of these profitable positions have now been closed after the theatre business revealed it is mulling bankruptcy protection in the US, sending shares sharply lower.

Monitoring short positions is useful for investors as an indicator on the health of a company, or as a potential buying opportunity if they think the view of funds is too pessimistic.

Analysts at Deutsche Bank made this point yesterday on Kingfisher, when they reiterated their “buy” recommendation ahead of interim results on 20 September and said there was a “favourable risk/reward” due to the large short interest.

The bank reduced its profit forecasts for the year by 5% to reflect the impact of higher energy costs on consumer demand, but said it sees Kingfisher as a “relative winner” over the next 12 months because of its ability to pass through inflation. It views other strengths as the company’s scale and solid balance sheet.

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Deutsche Bank reduced its price target from 305p to 270p to reflect the weaker profits outlook, while counterparts at Jefferies last month highlighted a figure of 335p.

The US bank said a valuation at the time of eight times 2023 earnings appeared to suggest that investors are already pricing in “a very sharp level of pain”.

Jefferies said: “It is tough to argue against what looks to be a fragile European consumer outlook at a time when disposable incomes are set to be further challenged in the months ahead. However, what sets Kingfisher aside from other peers is that the group is in a clearly stronger competitive position relative to pre-Covid times.”