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The Short Report

Weekly Reports | Oct 26 2017

This story features METCASH LIMITED, and other companies. For more info SHARE ANALYSIS: MTS

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 October 19, 2017

Did the ASX200 rally last week? Well if you weren’t sure, a glance at the table below might provide the answer. The index did indeed rally, all the way from under 5800 to 5900, and clearly short-covering added fuel to the fire.

“We will watch with interest next week,” I said in last week’s Report, “to see just what impact the index breakout has had on short positions”. Well the impact is clear – a sea of green below.

There was not a great deal of movement among those in the 10% plus shorted club, with long-term positions remaining entrenched. Nickel miner Western Areas ((WSA)) saw its shorts drop to 12.1% from 14.5% but such moves up and down amongst the nickel miners are common.

Metcash ((MTS)) bucked the trend and snuck back in, but this required only a slight tick-up. More notable was a fall for Retail Food Group ((RFG)) to 11.9% from 13.4% following that company’s announced expansion into Russia.

Lower down the table, green dominates. Most short position reductions were less than one percentage point, with the exceptions of Japara Healthcare ((JHC)) and Nine Entertainment ((NEC)).

Japara shorts fell to 5.8% from 7.1%, which is interesting given the revelation Moelis Australia had taken a 9.96% stake in the residential aged care provider came this week, not last, prompting a spike in the share price.

As for Nine, that stock, too, enjoyed a rally in a week in which the only real headline was the departure of Lisa Wilkinson. Shorts fell to 5.6% from 7.3%. Perhaps traders assumed Lisa’s removal from the payroll represented a cost cut. Imagine if it was Karl who had gone.

The only flashes of red we see at the low end of the table are IOOF Holdings ((IFL)), which took a tumble after the fund manager acquired ANZ’s pension and investment business and brokers wondered whether it was that good an idea, and mortgage broker Mortgage Choice ((MOC)).

Mortgage Choice has been under a cloud with regard possible changes to commission rules as well as a potential cooling off of the housing market. Both stocks reappeared in the low end of the table last week.

That about covers it. No Movers & Shakers to specifically expand upon this week.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.3
IGO     18.7
DMP   15.3
JBH     14.8
HSO    13.4
ORE    12.5
WSA   12.7
RFG    11.9
MYR   11.3
SHV    11.2
AAD   11.0
GXY   10.7
ACX   10.6
APO    10.6
MTS    10.3
HVN   10.2

In: MTS                      

9.0-9.9

MYX
 
Out: MTS, NXT                                                                     

8.0-8.9%

NXT, RIO, FLT, QIN, NWS, GTY

In: NXT                      Out: GTY

7.0-7.9%

HT1, TPM, VOC, SEK, GTY

In: GTY                      Out: ISD, AHG, SAR, NEC, JHC, NSR

6.0-6.9%

AHG, ISD, BKL, NSR, MND, SAR, GXL, BEN, AAC

In: AHG, ISD, NSR, SAR                             Out: BAP, IPD, CSR

5.0-5.9%

CSR, ING, JHC, IFL, BAP, GMA, NEC, IPD, KAR, PRU, TAH, MOC, SUL, QUB, WHC

In: JHC, NEC, CSR, BAP, IPD, IFL, MOC             Out: SDA, BAL, BWX, IPH

                       
Movers and Shakers

See above.
 

ASX20 Short Positions (%)

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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CHARTS

IFL MTS NEC RFG

For more info SHARE ANALYSIS: IFL - INSIGNIA FINANCIAL LIMITED

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

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

For more info SHARE ANALYSIS: RFG - RETAIL FOOD GROUP LIMITED