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:

Week ending September 11, 2014.

Last week saw the beginnings of what has become the "Sell Australia" trade. All the big caps have been hit, especially those with high yields, but the sell-off has been largely general. It's been red on screen for several sessions share price-wise but that has translated to quite a lot of green on our table this week, as lower prices encouraged more profit-taking on shorts than it did increasing of short positions. Among the elite 10% plus club, Cochlear, Metcash and JB Hi-fi all saw notable short reductions.

Indeed, no stock in the 5% plus shorted group saw a short increase of one percentage point or more, while Retail Food Group and UGL were among those stocks seeing sizable short reductions. In contrast to the general selling across the market, bargain hunters have tried to stem the flow in the mining sector despite any sign of iron ore price relief. Atlas Iron saw its market-leading  short position no more than trimmed last week but BC Iron saw a more notable reduction.

Weekly short positions as a percentage of market cap:

10%+

AGO   15.4
ACR    14.3
MYR   13.2
COH   12.2
NWS   11.6
MTS    11.6
JBH     10.6
PDN    10.3
NXT    10.0

In: NXT

9.00-9.99%

TRS, MND, RRL,

In: RRL                       Out: NXT, ILU

8.00-8.99%

ILU, DSH, FMG, CAB

In: ILU            Out: RRL, BKN, UGL

7.00-7.99%

MIN, BKN, BLY, WHC, KAR, VET, MSB, WSA

In: BKN, VET, WSA             Out: RFG, NUF, ASL

6.00-6.99%

ASL, NUF, SGM, BRU, UGL

In: NUF, ASL, UGL              Out: VET, WSA, BCI, ALQ

5.00-5.99%

VRT, KCN, LYC, FLT, ALQ, OZL, TEN, BCI, SXL, SPL

In: ALQ, BCI, SXL               Out: MTU

Movers and Shakers

It appears the beginnings of “Sell Australia” last week encouraged shorters to take profits rather than run with the trend, perhaps assuming this would be but another brief pullback. Thus we saw a trimming of several positions among the 10% plus shorted club.

Cochlear ((COH)) shorts rose to 14.6% from 12.2% the week before but last week fell back by the same 2.2ppt to 12.2% once more. Metcash ((MTS)) shorts fell 1.6ppt to 11.6% from 13.2% and JB Hi-Fi ((JBH)) shorts fell 1.2ppt to 10.6% from 11.8%.

The exception at the top of the table was Myer ((MYR)), which having reported a shocker of an earnings result last week saw its shorts increase to 13.2% from 12.5% despite a sharp fall in share price. Atlas Iron ((AGO)) shorts were slightly trimmed to 15.4% from 16.0% as bargain hunters tried to pick a bottom for the iron ore price, without a lot of luck.

While the jury is still out on Atlas Iron’s capacity to weather the storm of low iron ore prices, BC Iron ((BCI)) has received attention as the company may not end up taking over Iron Ore Holdings ((IOH)) in the current environment, which would be a positive as far as analysts are concerned. BCI shorts fell 1.4ppt last week to 5.2% from 6.6%.

The week before last, Retail Food Group ((RFG)) saw its shorts increase to 7.4% from 5.2% but last week that reversed by 3.0ppt to 4.4%, shooting RFG out of our 5% plus table. Either general market weakness encouraged a quick profit or RFG is being played in a pairs trade.

UGL ((UGL)) is another stock to have seen a lot of ups and downs in its shorts these past couple of months which would suggest it is likely a popular pairs trade candidate within the mining services sector. Last week its shorts fell 2.3ppt to 6.0% from 8.3%.

Two companies not currently appearing on our table at present but worthy of mention given large moves are Select Harvests ((SHV)), which saw its shorts fall 2.1ppt to 1.3% from 3.4% and Singapore Telecom ((SGT)), which saw its shorts fall 1.9ppt to 2.6% from 4.5%. SingTel used to move up and down our 5% plus table with monotonous regularity not so long ago so maybe its pairs trading appeal is on the wane since Telstra ((TLS)) went ex-div and started slipping.

None of last week’s notable increases in short positions featured companies among the most shorted on the market.

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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