Those hedge funds are unlikely to take these losses lying down – they'll be looking at the recent top performers as candidates to short on the next leg down, assuming that the global equity markets stick to past form and start a slow retreat over the coming weeks before stabilising around mid-July when the next earnings reporting season is due to start.
If another bout of shorting does erupt in the coming months it will stir up an already frenzied debate among regulators, policy-makers and politicians – many leading figures outside the world of finance think that short selling should be banned. But short sellers have been around for decades and most fundamentals-based investors have long embraced short selling as a part of their wider investment armoury. Legendary author and value investor Ben Graham was a notable exponent of shorting poor-value companies. And there's plenty of evidence that short selling can not only produce solid profits – if risk is properly managed – but also improve the health and efficiency of stock markets.
The bottom line – although most politicians may not like it – is that short sellers are frequently right about identifying poor-value companies and their actions tend to make markets more liquid and improve pricing. That's not necessarily good news for the managers of companies under assault. Then again, it's not the job of markets to worry about the 'feelings' of board members.