But MM&E’s Tom Elliot said that a regulator that intervenes as suddenly and heavy-handedly as ASIC had done was a deterrent for foreign investors. “People will not want to invest here,” he said. “It undermines the idea of a free market. I don’t think they [ASIC] have thought through all the implications.” Dominic McCormick, chief investment officer at Select Asset Management agrees: “I think the decision will have a lot of unintended consequences,” he said. “It sends the wrong message to foreign investors. It says Australian companies are weak and need help. Good companies have nothing to fear from short selling.”
McCormick said the argument that short sellers would focus on Australia if it didn’t follow bans in the US and UK was “pretty speculative”, and he did not think it was the job of the regulator to be “second guessing”. Elliot said assuming Australia would be targeted if it were the only market not to ban short selling was “a spurious piece of logic”.
Standard & Poor’s placed its rating for the Select Alternatives fund, a diversified multi-strategy fund, on hold the day following the announcement. McCormick said that if, as indicated, the ban was only temporary, its affect on the performance of most funds would be largely immaterial. But there was a chance that it could spook investors. “A knee-jerk reaction from investors to pull out of funds that do short selling would be irrational, but in the current market, anything seems possible,” he said. “Banning short selling introduces another element of risk into an already risky environment. It doesn’t make sense at this time to reduce investors’ access to hedging.”
A doyen of Australia’s hedge fund industry, Damien Hatfield, said the temporary blanket ban on shorting was a “massive retrograde step”, the lack of industry consultation was “outrageous”, and that global investors would be repelled by the “kneejerk reaction” of the regulator.