The Short Report

This story features MINERAL RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: MIN

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 April 21, 2016

Last week saw the ASX200 continue to rally on commodity price increases and related bank stock improvement before topping out under 5300.

The level of overall shorting activity in the market remains subdued. While there are quite a few red and green movements apparent in the table below, all represent minor bracket creep. Last week saw no short position change by a percentage point or more for stocks 5% or more shorted.

It’s perhaps otherwise worth noting that following its profit warning earlier in the month, Nine Entertainment has reappeared in the table in the 5% bracket. Meanwhile, once incumbent 10% plus club member Mineral Resources ((MIN)) last week disappeared off the table altogether.

It may be back next week, given shorts in this stock are quite volatile. Last week I made note of Greencross ((GXL)) having fallen out of the table after also having been in the 10% plus bracket at one point, but it has snuck back into the 5% bracket this week.

Weekly short positions as a percentage of market cap:

10%+

MTS    16.6
WOR   15.4
MYR   13.5
ORI     11.5
PRY    11.5
FLT     11.2
MND   10.0

No changes

9.0-9.9%

AWC, JBH
 
Out: CAB      

8.0-8.9%

CAB, AWE, WSA, WOW, BAL

In: CAB, WSA           Out: IGO

7.0-7.9%

IGO, GUD, RGF, SGH, OSH

In: IGO                       Out: WSA, SHV, SEK

6.0-6.9%

SEK, IVC, SHV, BEN, MRM

In: SEK, SHV             Out: NWS

5.0-5.9%

NWS, GXL, CTD, SUL, ALQ, CDD, NEC, AAC, PDN, IFL, BOQ, AHY, CVO, WHC, TFC, QUB

In: NWS, GXL, NEC, CVO              Out: MIN

Movers and Shakers

Free to air television is on the decline, which should hardly come as a surprise to anyone. Earlier this month Nine Entertainment ((NEC)) downgraded its earnings guidance due to a weaker view on industry growth overall, with regard to advertising revenues, and an individual drop in ratings. Nine’s new shows have not gained much traction and Seven ((SWM)) seems to be the beneficiary.

While the stock took a big hit on the day, analysts remain torn between TV’s decline and the positive factors relating to Nine, being a very strong dividend yield, the possibility of a licence fee reduction in the May budget, and the (seemingly eternal) possibility of the government finally introducing changes to media ownership laws.

The fall in share price has not deterred the shorters. Nine is not a stranger to the 5% plus shorted table but has now snuck back in after a hiatus.

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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