The Short Report

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

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 9, 2017

Last week saw the ASX200 bolt up from just above 5900 to peak out at 6050. One might have expected the break-out of the longstanding 6000 barrier to spark some covering from nervous shorts, or indeed that the sharp rise might have been aided by short-covering, but the table below shows little evidence of such.

Ups and downs are minimal and only represent bracket creep. There is one exception however.

It’s been a while since I’ve highlighted battery-related mining stocks in this Report, for the simple reason their share prices are very volatile and as such so are their weekly changes in short position. As they are among the most shorted stocks in the market, changes of one percentage point or more are less relevant on a weekly basis.

But last week saw decent reductions in shorts for both Galaxy Resources ((GXY)) and Orecobre ((ORE)). See below.

Another move to note, which is not substantial in the wider picture but worth highlighting nonetheless, is that shorts in National Bank ((NAB)) doubled last week, to 1.4% from 0.7%, in the wake of a poorly received earnings result.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.3
IGO     19.9
DMP   16.6
JBH     16.0
HSO    14.6
RFG    12.6
ORE    11.5
WSA   11.4
MTS    10.9
ACX   10.6
AAD   10.5
MYR   1049
APO    10.3

Out: HVN                  

9.0-9.9

HVN, MYX, SHV
 
Out: GXY                                                                  

8.0-8.9%

HT1, NWS, FLT, JHC, RIO, QIN, VOC, GXY, MND

In: GXY, JHC, VOC, MND              Out: NXT       

7.0-7.9%

TPM, NXT, NSR, GXL, SEK, GTY

In: NXT                      Out: VOC, JHC, MND

6.0-6.9%

MYO, AHG, BEN, BAP, ING, BKL, AAC

Out: ISD, SAR

5.0-5.9%

TAH, ISD, CSR, MOC, KAR, GMA, NEC, WHC, SUL, IFL, SAR, PRU, IPD, ABC, QUB

In: ISD, SAR              Out: FXL

                       
Movers and Shakers

Late last month a broker report put a bomb under all battery-related commodities, and subsequently share prices of the miners of those commodities. The report suggested global growth in demand for electric vehicles will outpace the growth in production of metals used in EV batteries, including lithium, cobalt, graphite and nickel.

The share prices of Australia’s lithium miners went for a run, after having already run hard for some time on the battery story. Short-covering was evident, given battery-related miners are over-represented in the 10% plus shorted club.

Shorts in Galaxy Resources fell to 8.2% from 9.6% and shorts in Orocobre fell to 11.5% from 12.9%.

Still atop the table, graphite mine developer Syrah Resources ((SYR)) saw its shorts fall to 21.3% from 22.2%. But it was this week that Syrah presented to a UBS conference and sparked a 10% one-day share price jump.

The report did little to change shorters’ views on the two major nickel miners Independence Group ((IGO)) and Western Areas ((WSA)). Their extensive short positions are little changed.

The issue with National Bank was not so much a “miss” on earnings, given that was down to a drop in market trading profits suffered by all the banks, but an announced significant increase in investment in FY18 that will drag heavily on earnings.

Drag on earnings and you drag on dividends. NAB shorts doubled post result to 1.4% from 0.7%. Commonwealth Bank ((CBA)) shorts remained at 0.9%, ANZ Bank ((ANZ)) saw a tick up to 0.7% from 0.6% and Westpac ((WBC)) copped an increase to 1.6% from 1.4%.

 

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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