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 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 December 11, 2014.

After having crashed the week before, last week the ASX200 enjoyed a brief relief rally early on before fading away again to the end of the week. The index basically finished the week where it had started. Thus the frenzy of short activity we saw the week before, mostly profit-taking, gave way last week to more subdued activity. It is nevertheless quite noticeable that the bulk of "bracket creep" on our 5% plus shorted table below is of the red variety, suggesting shorters took the opportunity of the brief bounce to top up some of their favoured positions.

There were few Movers & Shakers last week, although we note BC Iron is back in the sights after a round of profit-taking the week before on the plunging iron ore price, and Karoon Gas is in the sights on the plunge in oil prices, while an improving outlook for uranium prices may be behind Paladin's quiet slip out of the 10% plus club after a long tenure. Meanwhile News Corp appears to have a very big drop in shorts, but this is likely related to the group's long term split and share register consolidation process.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.3
JBH     13.0
UGL    12.5
ACR    11.8
MTS    11.7
KCN   11.2
AGO   11.2
RRL    11.1
MIN    10.5
COH   10.2
MML   10.0    

Out: PDN, NWS

9.0-9.9%

PDN, SUL, FMG, WHC

In: PDN, SUL, FMG, WHC              Out: NXT

8.0-8.9%

PBG, NXT, ALQ, SGM, BCI, CDD, KAR, CAB

In: NXT, ALQ, BCI, CDD, KAR, CAB       Out: SUL, FMG, WHC

7.0-7.9%

MND, TRS, WSA, ASL, FLT, VRT, DSH, EVN

In: VRT           Out: ALQ, BCI, CDD, KAR, CAB, MSB, BDR

6.0-6.9%

MSB, GNC, BDR, ORI, NWS, CRZ, DOW

In: NWS, MSB, BDR, DOW             Out: VRT

5.0-5.9%

SXL, ILU, PRY, SXY, MRM, SLR, TEN, GWA, SIR

In: SXY, GWA, SIR             Out: DOW
 

Movers and Shakers

News Corp ((NWS)) has long been a tenuous member of the 10% plus shorted club, ever since Rupert elected to spin off 21^st Century Fox and consolidate the non-ordinary shares of both companies. Determining to what extent NWS was truly shorted by the market has been impossible given interim arbitrage trades between the ordinary and non-ordinary shares. But last week NWS shorts dropped 3.9ppt to 6.5% from 10.4%, which may indicate this long-running process is finally concluding.

Paladin Energy ((PDN)) has also been a longstanding member of the 10% plus club hence while PDN shorts only fell 0.9ppt to 9.8% from 10.7% last week, and may just as soon rise once more given a tenuous debt position, it is worth pointing out the stock is out of the club for now.

Big falls in iron ore prices the week before last sparked some profit-taking among those having shorted iron ore miners for some time, but the iron ore price has continued to creep lower and it seems BC Iron ((BCI)) is thus back on the shorters’ radar once more. Its shorts jumped back 1.1ppt last week to 8.6% from 7.5%.

Brokers are pretty keen on Karoon Gas ((KAR)) and its ongoing exploration success in Brazil, and all five FNArena database brokers covering the stock have a Buy or equivalent rating. But KAR is an energy company nonetheless, which means the market has punished the stock on falling oil prices and the shorters have become more enthusiastic. Last week KAR shorts increased 1.0ppt to 8.3% from 7.3%.

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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms