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The Short Report

Australia | Jul 21 2016

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 July 14, 2016

Last week saw the ASX200 rally for five straight days, from 5200 to 5400, as the post-Brexit, central bank-covered rally stepped up a gear.

I once again find myself red-faced this week in having to question the ASIC data. In last week’s Report I provided reasonable explanations for why News Corp ((NWS)) and Primary Health Care ((PRY)) may have seen some sharp short covering the week before, while pointing out Nine Entertainment ((NEC)) and Downer EDI ((DOW)) had also dropped swiftly out of the 5% plus shorted table.

Well, last week they were all back where they were previously, mysteriously re-establishing prior short percentages. So while there appears to be a lot of red on the table below, we can presumably dismiss at least four of the moves.

And that makes we almost reluctant to highlight last week’s sharp moves up in short position for IOOF Holdings ((IFL)), to 9.1% from 7.2%, and MYOB ((MYO)), to 9.0% from 7.1%. IOOF has been rallying with the market as one would expect but there is no new news from the company. One broker downgraded MYOB to Hold this week, but that’s after last week’s short increase. The share price has done nothing much.

Perhaps easier to explain is an increase in Western Areas shorts to 9.9% from 8.9%. See below.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.1
MTS    13.7
WOR   13.3
FLT     11.7
MND   10.7

Out: CVO

9.0-9.9%

WSA, BAL, CVO, OSH, IFL, MYO
 
In: CVO, WSA, IFL, MYO               Out: CAB, IGO                     

8.0-8.9%

IGO, CAB, AWC, ORI, BEN

In: IGO, CAB, ORI, BEN                 Out: WSA, CTD        

7.0-7.9%

WOW, CTD, IVC, JBH, AWE, NWS

In: CTD                       Out: IFL, MYO, ORI, BEN

6.0-6.9%

NEC, SGH, DOW, ISD, TFC, PRY, AHY

In: NEC, DOW, PRY             Out: GUD

5.0-5.9%

GUD, QUB, ANN, MSB, SEK, SGM, AAC, SPO, RFG, MRM, VOC, OFX

In: GUD, ANN, SGM            , OFX              Out: SHV, WHC, SAI

Movers and Shakers

The new Philippines president is an eclectic character, happy to grant citizens licence to murder drug dealers on the one hand but wishing to pursue an environmentally friendly agenda on the other. Expectations are that a nation-wide audit will see some nickel mines in the Philippines shut down for failing to meet international emission standards.

The nickel price has risen lately as a result, albeit tenuously at this stage. A Philippines ban would come hot on the heels of a recent Indonesian export ban for the completely different reason of wishing to promote a downstream nickel industry in the country. When that was announced, the nickel price shot up dramatically.

But not for long. And much of the world’s nickel production continues to be loss-making at historically low prices. The share price of nickel miner Western Areas ((WSA)) nevertheless had a good run last week – in line with the market but no doubt with a nod to the Philippines. Last week Western Areas shorts increased to 9.9% from 8.9%.
 

ASX20 Short Positions (%)

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

DOW IFL NEC NWS WSA

For more info SHARE ANALYSIS: DOW - DOWNER EDI LIMITED

For more info SHARE ANALYSIS: IFL - IOOF HOLDINGS LIMITED

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

For more info SHARE ANALYSIS: NWS - NEWS CORPORATION

For more info SHARE ANALYSIS: WSA - WESTERN AREAS LIMITED