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The Short Report

Weekly Reports | Apr 20 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 April 13, 2017

Last week saw the ASX200 kiss 5900, meet resistance, and then begin to plummet back to 5800 this week on telco upheaval and commodity price falls.

It was the week leading into Easter and school holidays in the major states, which may explain why movements in short positions ground to a near halt. As this Report covers Friday to Thursday, next week’s Report will feature only three day’s trading. The following week brings Anzac Day as the school holidays wrap up. It might be a slow period in Short Land.

We have been following the gradual slide of contractor WorleyParsons ((WOR)) down the table over past months from a once seemingly permanent position in the 10% plus club. The rebounding oil price started the move, but takeover speculation, thanks to a 19.9% stake taken by Dar Group, ensured Worley slipped out of the 5% table altogether the week before last.

Worley is back at 11.2% shorted. I’m suspicious. We’ll need to see next week’s data to confirm whether this is just another ASIC blip.

Speaking of stocks that once called the 10% plus club home, I noted in last week’s Report that JB Hi-Fi ((JBH)) had reappeared at the bottom of the table. JB shorts increased last week to 6.4% from 5.2%.

Weekly short positions as a percentage of market cap:

10%+

ORE    20.9
WSA   16.3
ACX   15.9
SYR    15.8
MYR   13.0
QIN     12.1
VOC   11.3
QIN     11.6
WOR   11.2
NEC    10.9
DMP   10.8
IGO     10.1
MYX   10.1

In: WOR, IGO                       

9.0-9.9%

MTS, OFX, ILU, ISD, HVN
 
Out: IGO, AAD                                                        

8.0-8.9%

FLT, BAL, AAD, PRU

In: AAD         

7.0-7.9%

RWC, GTY, EHE, NWS, JHC, NXT, MND

Out: RFG, A2M

6.0-6.9%

RFG, A2M, IPD, CSV, RIO, HSO, IFL, JBH, SGH,BGA, PDN, SEK, MYO, MTR

In: RFG, A2M            , JBH, SEK                 Out: GXL

5.0-5.9%

CTD, GXL, BKL, KAR, AAC, BDR, BEN, IVC, CSR, OSH, LNG, SUL, AWC

In: GXL                      Out: SEK, JBH

Movers and Shakers

In the post-GFC economy, in which retailers were expected to suffer from consumer angst, JB Hi-Fi continued to confound the doubters by posting earnings beats virtually every half. The shorters persisted nonetheless, and JB became a reliable 10% plus shorted incumbent.

Eventually shorters finally gave up on the retailer, conceding, from their hospital beds, that JB Hi-Fi had defeated them. The stock quietly began slipping down the table until finally dropping out of the 5% bracket. But two weeks ago JB reappeared at 5.2% shorted.

Rival Harvey Norman is sitting on 9.1% shorted, but also has its own issues to deal with. JB Hi-Fi shorts last week rose to 6.4%. It is perhaps fitting to note this on a day Amazon confirms its official incursion into Australia.

 
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

JBH WOR