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The Short Report

Weekly Reports | Mar 16 2017

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending March 9, 2017

Last week saw the ASX200 bounce off 5700 after a fairly sharp pullback before beginning a choppy rally back towards the 5800 resistance level. The prominent feature of the bounce was a swing from resource sector selling back to resource sector buying, as investors decided post result season profit-taking had run far enough.

In last week’s Report I highlighted a sea of red, as short positions were built predominantly amongst the miners. This week sees a lot more green than red, and indeed a notable reduction in the total number of stocks shorted by 5% or more, but very few of the short position reductions involve miners.

On the contrary, two of the biggest movers up the table last week were Western Areas ((WSA)) and Independence Group ((IGO)), while Perseus Mining ((PRU)) also ticked higher.

I have extensively covered the issues dominating nickel mining in recent Reports, and specifically the delay to Independence’ Nova project last week, so no need to go over all of that again. Western Areas shorts have increased to 15.8% from 14.1% and Independence has jumped to 11.1% from 8.7%.

Despite all the green below, only one short reduction reflected anything more than bracket creep, that is a full percentage point or more. Bendigo & Adelaide Bank ((BEN)) shorts dropped to 6.8% from 8.3%.

On the red side, troubled SaaS company iSentia ((ISD)) saw its shorts climb to 9.5% from 7.7% and dietary supplements supplier Blackmores ((BKL)) jumped to 7.0% from 5.7%.

While not a big move, it’s worth noting Woolworths ((WOW)) shorts fell to 4.6% from 5.2%, taking the stock out our table after a long incumbency. That just leaves Rio Tinto ((RIO)) as the only ASX20 stock shorted by 5% or more.

Weekly short positions as a percentage of market cap:

10%+

ACX   17.2
WSA   15.8
ORE    15.6
MYR   15.5
TFC     13.8
SYR    12.1
VOC   11.7
NEC    11.7
IGO     11.1
MTS    10.2

In: IGO                      

9.0-9.9%

DMP, ISD, MYX
 
In: ISD            Out: WOR                                         

8.0-8.9%

MND, AWC, AAD, WOR, SRX, PRU, BAL, FLT, NWS

In: WOR, PRU, FLT              Out: IGO, BEN, OFX, DOW                                   

7.0-7.9%

NXT, GTY, DOW, ILU, OFX, RIO, BKL

In: DOW, OFX, BKL                        Out: ISD, FLT, PRU, BGA, MTR, RWC

6.0-6.9%

RWC, A2M, BEN, BGA, MTR, IPD, HSO, SGH, SEK, EHE, IFL, PDN

In: BEN, RWC, BGA, MTR              Out: CSV, IVC, SHV

5.0-5.9%

IVC, CTD, MYO, KAR, CSV, CSR, AAC, MSB, GXL, OSH, RFG, JHC

In: IVC, CSV, RFG               Out: BKL, MDL, DCN, WOW, SPO, CAB, CQR

Movers and Shakers

Bendigo & Adelaide Bank has been a slow mover up the 5% plus shorted table over recent months. Benelaide’s share price has been weak since the bank posted a disappointing result last month.

Seven FNArena database brokers cover the stock and heading into the bank’s earnings report release, five had Sell or equivalent ratings on the basis of perceived overvaluation. Following the weak result, the remaining two also downgraded, leaving Bendelaide with an unenviable full suite of Sell ratings.

Time to buy then? Maybe the shorters are wary of this contrarian play. Bendelaide shorts have fallen to 6.8% from 8.3%.

Media monitoring software company iSentia posted a sizeable profit warning before its result release and still managed to miss adjusted forecasts on release. Anything to do with software-as-a-service and clouds had been hot property in the market until reality began to bite. A major issue for iSentia is a lack of barriers to entry in the space.

The stock has been climbing quietly up the table and last week shorts jumped to 9.5% from 7.7%.

Blackmores has been jumping in and out of the low end of the table for some time, as the market tries to assess whether the same sort of issues impacting on the business of importing infant formula to China will stretch to this company’s suite of vitamins, minerals, eye of newt etc. As is not the case in the now crowded infant formula market, Blackmores has no direct competitors listed on the ASX.

Blackmores posted a mildly weak result last month and its share price has been quietly declining since. With brokers warning of the potential for volatility due to the Chinese government’s propensity to make hasty regulation changes, shorts have jumped to 7.0% from 5.7%.
 

ASX20 Short Positions (%)

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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CHARTS

BEN BKL IGO ISD PRU RIO WOW WSA