The Short Report

This story features STARPHARMA HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: SPL

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 July 24, 2014

The ASX200 reclaimed the 5500 mark last week in an upward trend that this week saw it break through 5600. As the first of the earnings reports begin to trickle in, shorting activity is not frantic but on a net basis shorts are increasing rather than decreasing. No stock fell out of our 5% plus table last week, but we welcomed in all of Starpharma Holdings ((SPL)), Retail Food Group ((RFG)), GUD Holdings ((GUD)) and Cardno ((CDD)), on small short increases.

iron ore continues to be a dominant theme on the short-side, with Atlas Iron now the third most shorted stock in the market, Fortescue creeping further up the table and Mineral Resources just shying of joining the 10% plus club with another solid short increase. Virtus Health is another upward creeper, with shorters no doubt eyeing Primary Health Care's ((PRY)) new move into VRT's prime IVF market. Paladin Energy has lost a few short fans, possibly since two Japanese reactors passed their safety inspections.
 

Weekly short positions as a percentage of market cap:

10%+

COH   17.8
ACR    15.3
AGO   14.4
JBH     13.5
MND   13.3
MYR   13.0
MTS    11.5
TRS     11.3
PDN    11.0
UGL    10.9
NWS   10.6

No changes

9.00-9.99%

MIN, ILU, NXT, BKN, ALQ,

In: MIN, NXT

8.00-8.99%

CAB, FMG, WHC

In: FMG, WHC          Out: MIN, NXT, SGT, BLY 

7.00-7.99%

MTU, RRL, BLY, DSH, ASL,

In: BLY          Out: FMG, WHC, MSB

6.00-6.99%

NUF, WSA, KAR, SGT, MSB, BRU, VET, VRT

In: MSB, SGT, VRT               Out:  TEN

5.00-5.99%

TEN, FLT, IVC, SPL, GWA, SGM, TSE, RGF, HVN, GUD, CDD, SCP

In: TEN, SPL, RFG, GUD, CDD      Out: VRT

Movers and Shakers

Last week we saw Atlas Iron ((AGO)) move into position of fourth most shorted stock in the ASX and with iron ore prices fluctuating below the US$100/t mark, AGO has now claimed the bronze with another 1.0ppt increase in shorts to 14.4% from 13.4%. Bigger peer Fortescue Metals ((FMG)) bracket-crept into the 7% band last week and has now crept up again, into the 8% band.

The iron ore theme continues with mining contractor Mineral Resources ((MIN)) suffering another 1.1ppt increase in shorts following the previous week’s 1.8ppt increase. MIN shorts now sit at 9.9%, despite a strong quarterly sales report last week pushing the share price higher.

Virtus Health ((VRT)) popped up in our 5% plus table with a 1.0ppt short increase to 5.2% last week and despite a rebound in share price, has now bracket-crept into the 6% band.

While members of the 10% plus club have no more than shuffled positions, Paladin Energy ((PDN)) shorts have fallen 1.1ppt to 11.0% from 12.1%. PDN shares rose last week on news the first two Japanese reactors had passed stringent new safety regulations, suggesting potential for restart.

It is difficult to gauge anything from a 1.8ppt fall in News Corp ((NWS)) shorts to 10.6% from 12.4% given offsetting positions in non-ordinary shares post the Fox split and reorganisation. Fox has made a bold bid for larger Time Warner in typical Rupert style, but in theory this should not impact.

Telco pairs trading is relentless and all a bit tedious, but Singapore Telecom ((SGT)) shorts have fallen 1.9ppt to 6.5% from 8.4% and may well do the reverse this week.

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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