The Short Report

This story features NEWS CORPORATION, and other companies. For more info SHARE ANALYSIS: NWS

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly and monthly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX).

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.

Summary:

Period: Week to, and month to, April 10, 2014.

It was a volatile week in the market last week but weekly short movements have slowed to a crawl ahead of the holiday period. Only two short increases of one percentage point or more were reported last week, and one of those was SingTel, which goes up and down just about every week, and the one short decrease was in News Corp, which we ignore until the 21st Century Fox delisting is completed.

The monthly numbers are more interesting, with four short increases of 2ppt or more meeting eight short decreases. Treasury Wine is the new kid on the shorting block having snuck into the Top 20 most shorted at 18 following a lot of same-old-same-old from the new CEO. The departure of a couple of the EFT names from the table means M2 Telecommunications ((MTU)) has also slipped up into the Top 20 at 20. The Reject Shop is gathering more short interest, as retailers are prone to do.

On the decrease side most names are familiar as the likes of Fairfax, Leighton, Kingsgate and Myer see interest from the shorters waning for various reasons.
 

Weekly Short Increases

Shorts in Singapore Telecom ((SGT)) increased to 4.02% from 2.00%

SingTel shorts fluctuate with tedious regularity without noticeable reason beyond perhaps a telco pairs trade. The share price has been volatile of late despite no new information, suggesting likely more of a currency effect.

Shorts in Aquarius Platinum ((AQP)) increased to 1.67% from 0.62%

Aquarius has announced a 2:1 rights issue, opening the stock up to a long rights/short stock arbitrage play.

Weekly Short Decreases

Shorts in News Corp ((NWS)) decreased to 10.74% from 12.93%

Until the year-long rationalisation of News and Fox related instruments is complete we’re best to ignore NWS short positions.

Monthly Short Increases

Shorts in Treasury Wine Estate ((TWE)) increased to 9.08% from 6.40%

Treasury Wine shares jumped after the new CEO outlined his strategy but when the realisation hit that we’d heard it all before, TWE shares drifted off again. Shorters are increasingly seeing an opportunity and this increase sees TWE enter the Top 20 at number 18.

Shorts in The Reject Shop ((TRS)) increased to 7.73% from 5.20%

The Reject Shop’s CEO resigned mid-March and the share price has had a strong month as expectations rise for the store roll-out to be rationalised. Shorters like shorting retail, and TRS is rapidly becoming a new target.

Shorts in Vocation ((VET)) increased to 6.47% from 4.04%

Vocation’s share price took a little hit early in the month as this recent listing begins to bed down. VET offers up a pairs trade possibility of sorts against Navitas.

Shorts in Regis Resources ((RRL)) increased to 5.63% from 3.61%

The gold price rallied sharply last week (but has since fallen back again). Gold price rallies push up gold stock prices and excite the shorters of smaller names such as Regis.

Monthly Short Decreases

Shorts in News Corp decreased to 10.74% from 17.25%

See above.

Shorts in Kingsgate Consolidated ((KCN)) decreased to 6.78% from 10.34%

The previous week’s big drop in shorts shot Kingsgate straight out of the Top 20 most shorted. As the weeks go by without KCN seeking to raise new capital, as is the distinct possibility given a stretched balance sheet, perhaps shorters are losing interest.

Shorts in Leighton Holdings ((LEI)) decreased to 3.50% from 6.68%

Major Leighton shareholder Hochtief has bid to increase its shareholding to 74%, which sparked a significant surge in the stock price on the announcement last month.

Shorts in Fairfax Media ((FXJ)) decreased to 4.28% from 6.71%

Short interest has continued to dwindle in this one time shorters’ favourite despite not much share price movement, with the company having appeared to be turning its fortunes around.

Shorts in Myer ((MYR)) decreased to 11.63% from 14.06%

Myer remains entrenched in the middle order of the Top 20, but last week’s shock takeover bid for rival David Jones, and the subsequent withdrawal of Myer’s merger proposal, saw the MYR stock price shoot up.

Shorts in SMS Management & Technology ((SMX)) decreased to 2.72% from 4.98%

After rallying for most of April the SMS share price came off a bit last week which possibly offered up a profit opportunity for a shorter. SMS is in a transition phase and earnings visibility is low.

Shorts in Paladin Energy ((PDN)) decreased to 9.47% from 11.71%

Despite this reduction, Paladin is still hanging around the low end of the Top 20 most shorted. As each week goes by without a rally in the uranium price, the chances of PDN needing to raise more capital increases.

Shorts in Spark Infrastructure ((SKI)) decreased to 3.34% from 5.41%

Spark’s share price has been very quietly recovering to some extent after a shocker of an earnings release back in February.

 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	QRE	517432	3022150	17.12
2	COH	9711844	57062020	17.02
3	SSO	135028	801304	16.85
4	UGL	23640110	166511240	14.20
5	MND	12445184	92679570	13.43
6	NWSLV	407959	3115091	13.10
7	JBH	12983940	100385400	12.93
8	MYR	68125507	585684551	11.63
9	MTS	99894462	888338048	11.25
10	NWS	2174069	20237280	10.74
11	BKN	17859709	171027249	10.44
12	AGO	94683776	915496158	10.34
13	ILU	42530085	418700517	10.16
14	ACR	16871409	166521711	10.13
15	BLY	46260391	461163412	10.03
16	PDN	91294696	964367284	9.47
17	ASL	29093232	312277224	9.32
18	TWE	58737424	647227144	9.08
19	WSA	20070513	232310014	8.64
20	MTU	14802668	179511351	8.25

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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