Euro bank bounce confounds bearish hedge-fund bets
By Francesco Canepa
LONDON, July 24 (Reuters) - Hedge-fund bets that peripheral euro zone bank stocks were set for a fall were confounded on Thursday by better-than-expected results from Spanish banks and bright spots in the bloc's economic recovery.
This combination led some investors to close their negative bets - a practice known as short-covering, which involves buying back shares they had previously borrowed and sold.
Some analysts said market sentiment on the banks was turning and that short-sellers were likely to remain on the sidelines for now.
Shares of Spain's Bankinter and Banco Sabadell were up 1.8 percent and 3.7 percent respectively on Thursday after reporting a pick-up in profit recovery, while Portugal's Banco Espirito Santo and Millennium BCP rose 2.5 percent and 6.4 percent.
A fresh batch of manufacturing PMI data from the euro zone showed some bright spots and was another trigger for the reversal of short bets, traders said.
"You're getting better PMI (data), BES seems to be sorting itself out, the earnings season is good - all of that would point to the upside for peripheral banks," Antonin Jullier, global head of equity trading strategy at Citi, said.
"Going long or at least covering the shorts on peripheral banks is a lot more interesting from a risk return point of view."
Short interest in southern European banks has mounted over the last three months due to weaker economic data in countries such as Italy and Portugal and financial problems gripping Espirito Santo's founding family. Continuación...