The Short Report

This story features ANSELL LIMITED, and other companies. For more info SHARE ANALYSIS: ANN

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 June 23, 2016

Last week saw the ASX200 bottom out at 5150 and rally back to near 5300 when the polls swung from suggesting a “go” vote in Britain to a “stay” vote. We all know what happened next.

While there’s quite a bit of red and green on the table below it all represents bracket creep of less than one percentage point, bar one stock, Cardno, which has jumped into the 7% bracket from below 5% the week before.

Thereafter, we note Bellamy’s Australia ((BAL)) has snuck back into the elite 10% plus club once more but only just, as it continues to hover around the 10.0% mark.

We note another creep up from Oil Search ((OSH)) – the favoured big energy name among brokers – now into the 9% bracket. Oil Search shorts have been steadily rising week on week since the company announced its plans to acquire PNG JV partner Interoil.

And we note a new entry into the 5% plus table for the first time for this Report, Ansell ((ANN)). Perhaps someone is looking for protection.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.2
MTS    14.4
WOR   14.1
FLT     11.0
MND   10.9
BAL    10.1

In: BAL

9.0-9.9%

IGO, ORI, CAB, OSH
 
In: CAB, OSH                        Out: BAL                   

8.0-8.9%

IFL, AWC, WSA, CVO, BEN, JBH

In: CVO          Out: OSH, CAB        

7.0-7.9%

WOW, MYO, IVC, PRY, AHY, NWS, CDD

In: AHY, CDD                       Out: CVO, SHV

6.0-6.9%

AWE, SHV, CTD, SGH, NEC, ISD, DOW, AAC, GUD, SGM

In: SHV, SGM                        Out: AHY, WHC

5.0-5.9%

TFC, QUB, WHC, MRM, MSB, SEK, RFG, ANN

In: WHC, ANN                      Out: SGM, SPO, FMG, KAR

Movers and Shakers

Now…Cardno ((CDD)) is a company which services, among other industries, the resource sector. Regular readers know that E&C companies that have long been incumbents of the 5% plus shorted table often fly around in percentage terms from one week to the next, including in and out of the table, for no immediately apparent reason. So grain of salt required.

However in Cardno’s case, the company recently announced a rights issue which was completed the day after the cut-off for this Report. It is thus highly possible Cardno’s short position jump from below 5% to 7.0% last week represented an attempted arbitrage play against the hope of receiving a sufficient number of shares at a discount via the rights issue.

If so, we would likely see Cardno shorts fall back again in next week’s Report.
 

ASX20 Short Positions (%)

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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