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The Short Report

Australia | May 05 2016

This story features NINE ENTERTAINMENT CO. HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: NEC

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 28, 2016

Last week saw the ASX200 pull back to 5200 before beginning its run to 5350 this week.

The level of overall shorting activity in the market continues on a downward trend. This is perhaps explained by the index pushing back up to technical levels we haven’t seen since before the big February sell-off, encouraging shorters to stand aside.

Yet the number of broker ratings downgrades is currently outweighing upgrades, with stretched valuation cited in most cases as reason to take ratings back to Hold or Sell. One might of thought this would interest the shorters, but it is not so at this time.

The week before last there were no movements in short positions of one percentage point or more among stocks at least 5% shorted. Last week we saw no movement of note in either the 10% plus or 9% brackets and, again, minor bracket creep among lower levels. There was however one exception.

Shorts in Australian Agricultural Company jumped to 7.4% from 5.3% the week before. AAC is not covered by major stock brokers but given it owns cattle stations, we can assume the recent government knock-back of a Chinese attempt to buy the massive Kidman holdings is behind the story.

Otherwise, we might only note that having reappeared in the 5% bracket the week before, Nine Entertainment ((NEC)) rose further into the 6% bracket last week.

Weekly short positions as a percentage of market cap:

10%+

MTS    16.9
WOR   14.7
MYR   13.7
FLT     11.5
ORI     11.2
PRY    10.1
MND   10.1

No changes

9.0-9.9%

JBH, AWC
 
No changes    

8.0-8.9%

CAB, AWE, BAL, WSA, WOW

In: CAB, WSA           Out: IGO

7.0-7.9%

GUD, IGO, AAC, IVC

In: AAC, IVC             Out: RFG, SGH, OSH

6.0-6.9%

RFG, SGH, OSH, SEK, NEC, SHV, BEN, MRM

In: RFG, SGH, OSH, NEC                Out: IVC

5.0-5.9%PDN,

BKL, NWS, CDD, CTD, CVO, WHC, SUL, AHY, IFL, TFC, PDN, GXL, QUB

In: BKL                      Out: AAC, NEC, ALQ, BOQ

Movers and Shakers

Australian Agricultural Company ((AAC)) is not covered by any of the eight major stock brokers in the FNArena database. Last month the company revalued its portfolio of cattle stations by 16%, suggesting a rise in value almost twice that of Sydney property prices over a year. The increase is no doubt justified by rapidly increasing Chinese interest in Australian agricultural assets.

On the revaluation, AAC shares dutifully rallied 16% over the week. But presumably the story is complicated by the government’s decision to block an attempt to sell the vast Kidman cattle station portfolio to the Chinese. Does the share price rise imply AAC’s portfolio might be of interest to the Chinese as an alternative (and bear in mind AAC is listed when Kidman is not)?

AAC has been hanging around in the 5-6% shorted bracket for months and months. Last week shorts jumped to 7.4% from 5.3%. Does this imply the revaluation ascribed to AAC by the market is unfounded, on the basis the government would block any Chinese takeover attempt as well? At least, maybe that’s what the shorters are playing at.

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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CHARTS

AAC NEC

For more info SHARE ANALYSIS: AAC - AUSTRALIAN AGRICULTURAL COMPANY LIMITED

For more info SHARE ANALYSIS: NEC - NINE ENTERTAINMENT CO. HOLDINGS LIMITED