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 November 13, 2014.

Last week saw an ongoing slide in the ASX200 after having exhausted its relief rally from the October sell-off. Weak commodity prices continue to weigh on the materials sector while the banks are finding difficult to find friends while there's a regulatory cloud overhanging. A switch towards more defensive names appears to be the play at present.

Unfortunately I am (again) unable to outline specific short movement values in this week's Report given ASIC is (still) in the process of reconstructing its short disclosure service. This means the ASIC Shorts table on the FNArena website is currently out of date. I can, however, point out which stocks' shorts have clearly moved up or down among the 5% plus group by comparing one week to the next.

Iron ore juniors feature this week, funnily enough, while Myer has further consolidated its top of the table position with daylight second. Thereafter, last week saw a lot of bracket creep both up and down percentage bands for those stocks over 5% shorted with no clear trend to discern.

Weekly short positions as a percentage of market cap:

10%+

MYR   18.2
MTS    14.1
ACR    13.8
JBH     12.2
AGO   12.1
PDN    11.6
UGL    11.5
KCN   10.7
MIN    10.5
NWS   10.5
COH   10.4
RRL    10.4
NXT    10.0

In: MIN, NXT           

9.0-9.9%

FMG

Out: MIN, NXT

8.0-8.9%

WHC, MND, BCI, TRS

In: MND, BCI, TRS   Out: SGM, ILU

7.0-7.9%

SGM, MML, ILU, PBG, SUL, WSA, MSB, BDR

In: SGM, ILU, SUL, BDR                 Out: MND, BCI, TRS, DSH, KAR  

6.0-6.9%

ASL, DSH, CAB, KAR, ALQ, EVN, VRT, FLT

In: DSH, KAR, VRT              Out: SUL, BDR, CRZ, TEN

5.0-5.9%

CRZ, BRU, SXL, OZL, SLX, OZL, TEN, CDD, DOW, SLR, MRM

In: CRZ, TEN, OZL              Out: VRT, PRY, VET, ORI

Movers and Shakers

This week has seen the iron ore price fall accelerate to even newer multi-year lows thus those increasing short positions in iron ore juniors last week will be pleased. Atlas Iron ((AGO)) began the year at $1.15 and is now trading at 20c, and was the first of the juniors to be circled by the shorting sharks. AGO’s short percentage has nevertheless remained stable for a while now nonetheless, indeed last week falling to 12.1% from 12.6%.

The same cannot be said for Mineral Resources ((MIN)), which has been steadily creeping up our 5% plus shorted table in past weeks. MIN has now broken into the elite 10%-plus club with a jump to 10.5% from 9.9%. Meanwhile, peer BC Iron ((BCI)) made the biggest move on our table last week with a 1.1ppt increase to 8.1% from 7.0%.

Soggy September quarter sales sent Myer ((MYR)) crashing and burning last week, but the shorters are clearly looking for the death tremors. Rather than take handy profits, the shorters increased positions in Myer to 18.2% from 17.6%. The department store was already top of the table but now has established a significant gap on runner up Metcash ((MTS)) with 14.2%. Metcash is a supermarket wholesaler caught between the rock of the incumbent duopoly and the hard place of encroaching foreign competitors.

This week has seen a bit of a rally in the gold price but last week goldminer Kingsgate Consolidated ((KCN)) was still wallowing at its depths. Last month the board suddenly dismissed both the CEO and CFO of the company which warmed many a shorter’s heart. KCN is a popular short play given its high debt level and exposure to the volatile gold price and having entered the 10%-plus club only the week before, last week saw KCN shift up to seventh most shorted stock with a rise to 10.7% from 10.3%.

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.

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