EWW shorts retreat as borrow market eases sharply

Bears have been stepping back from the EWW iShares MSCI Mexico ETF at a meaningful pace, even as options traders show growing caution about the near-term outlook.

Short interest has fallen to 7.3% of free float, down 15% over the past week and 26% over the past month. At the start of October, roughly 3.1 million shares were short; that figure is now below 2.2 million. The direction of travel is unambiguous: shorts are covering. The official FINRA fortnightly reading, settled through mid-October, showed 2.68 million shares short with 2.2 days to cover, confirming the trend is genuine rather than an artefact of daily estimates.

The borrow market has loosened in step with the covering. Availability has climbed to 125%, meaning lenders are now sitting on roughly 25% more shares than are currently on loan. That is a dramatic reversal from just two weeks ago: on October 16, availability was below 22%, one of the tightest readings of the past year against a 52-week low of 13.5%. Cost to borrow has fallen too, from above 4% through most of October to 2.84% now, its lowest level of the past month. For a name where borrow was genuinely constrained only a fortnight ago, the lending market has opened up quickly. The shift removes one mechanical pressure that had been supporting the covering trade.

Options positioning tells a different story from the short interest trend. Put/call ratio is running at 1.29, above its 20-day average of 1.17 and roughly 1.7 standard deviations above that mean. That is not extreme, but the ratio has been drifting higher since early October, suggesting options buyers are adding downside protection even as short sellers reduce outright bets. The 52-week range for PCR runs from 0.11 to 2.09, so the current reading sits in the upper half without approaching the fear extreme. The ORTEX short score has also eased, falling from 69.4 on October 16 to 63.1 now, consistent with the covering and the loosening borrow market.

The institutional register is worth noting for what it shows about the ownership base. M&G Investment Management is the largest disclosed holder at 6.9% of shares, and the State of Michigan Retirement Systems added its entire current position of 656,000 shares in the quarter ending June. Jane Street, a firm that typically acts as a market-maker, added 188,000 shares over the same period. Morgan Stanley reduced its stake by 237,000 shares. These moves are as of June 30 and may not reflect current positioning, but they point to a diverse holder base that includes both passive and active allocators alongside Latin American names such as BTG Pactual and AFP Provida.

Analyst data for EWW is dated back to 2008 and carries no weight here. The ETF structure means company-level earnings events are not applicable in the conventional sense, though the snapshot carries ETF-level "earnings" dates linked to semi-annual distribution announcements. The next distribution has no confirmed date in the data.

With short interest continuing to fall and borrow availability at a six-week high, the question is whether the covering trend stalls or whether the options market's caution proves better calibrated to the macro backdrop for Mexican equities.