The Short Report

This story features COCHLEAR LIMITED, and other companies. For more info SHARE ANALYSIS: COH

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:

Please note: ASIC is still revamping its short reporting system, and as such the data currently showing in the ASIC Shorts section of the FNArena website is out of date. As of this week, the FNArena Short Report has returned to its regular, weekly format.

Week ending January 22, 2015.

Every club has its stalwarts, its long-time regulars known to all. So entrenched at the elite 10% shorted club have been Cochlear ((COH)) and JB Hi-Fi ((JBH)) over the years that they each have their names engraved on a bar stool. But lo and behold, last week both stocks were omitted from the club! It may be only temporary — Cochlear shorts have slipped to 9.9% and JB Hi-Fi shorts to 9.8% — but worth noting nonetheless.

The ASX200 dipped and then recovered over the week in question, basically ending where it began. There was not a lot of movement among 5% or more shorted stocks in the week, although bracket creep was mostly to the upside, as the red colours indicate below. We are approaching results season, thus barring any late "confession session" dramatics, short movements are likely to quieten down for the moment.

Cardno is a newcomer to the 10% plus club this week, shooting in at sixth place. The services company is another victim of the mining and commodity price downturn. Regis Resources and Mt Gibson Iron are amongst the movers and shakers this week, but in different directions. See below.

Weekly short positions as a percentage of market cap:

10%+

MYR   18.0
UGL    13.2
SUL    12.5
MTS    12.0
AGO   11.6
CDD   10.9
ACR    10.1

In: CDD          Out: JBH, COH

9.0-9.9%

COH, JBH, FMG, NXT, PBG, WHC, KCN

In: JBH, COH             Out: CDD, RRL

8.0-8.9%

ALQ, MIN, SGM, TRS, KAR, SXY, BCI, RRL, CAB

In: RRL          

7.0-7.9%

ASL, VRT, MSB, MGX, MND, PRY, FLT, DSH

In: MGX, PRY, FLT, DSH   

6.0-6.9%

MRM, DOW, ORI, GNC, CRZ, JHC

In: JHC                       Out: MGX, PRY, FLT, DSH

5.0-5.9%

NWS, NWH, BDR, IIN, SXL, TPI, TEN, MML, GWA, VET, ILU

In: IIN, ILU                Out: JHC, SIR, BRU
 

Movers and Shakers

We have a newcomer to the elite 10% plus shorted club, in the form of Cardno ((CDD)). The infrastructure and environment services company has been advancing up our 5% plus table ever since a profit warning was issued in November which prompted the stock price to plunge 40%. Some graft-back in the meantime was quashed a couple of weeks ago when the CEO announced his resignation, sending the stock price back to its lows. Cardno shorts jumped 1.3 ppt last week to 10.9% from 9.6%.

Regis Resources ((RRL)) has seen its share price rally with the gold price these past couple of months and despite dealing with technical problems at its Garden Well mine, Regis’ share price has remained relatively stable of late. But the stock does seem to come in for some back-and-forth shorting action, likely suggesting it is a popular pairs trade among the goldminers. Regis shorts fell 1.3ppt last week to 8.1% from 9.4%.

Mt Gibson Iron ((MGX)) is another company suffering from technical problems, in this case enough to close the main pit at its Koolan Island iron ore mine. Management is assessing the potential to remediate the pit, but at such low iron ore prices analysts do not believe this will be commercially viable, given the cost. Mt Gibson shorts increased by 1.0ppt last week to 7.6% from 6.6%.
 

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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