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The Short Report

Weekly Reports | Feb 22 2018

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 February 15, 2018

Last week saw the ASX200 take another tumble but hold the 5800 mark until Wall Street rebounded, thus prompting a push back toward 5900. The local results season stepped up a gear last week, just to add to the volatility at the micro level.

A glance at the table below would suggest the shorters were very active last week amidst the macro volatility and a slew of earnings reports but most changes in short position were relatively small.

The most notable change was for JB Hi-Fi ((JBH)), which saw its shorts rise to 15.4% from 13.6% following a rare results miss.

Otherwise the larger moves were confined to the lithium miners, which offer their own brand of volatility. Galaxy Resources ((GXY)) shorts rose to 12.2% from 10.1%, Pilbara Minerals ((PLS)) rose to 8.6% from 7.8%, and Orocobre ((ORE)) saw a fall to 6.9% from 8.1%.

Just a lot of shuffle.

Shorts in News Corp ((NWS)) ordinary share shorts fell to 7.5% from 9.9%, but we see a corresponding appearance of News Corp non-voting shares (NWSLV, not tabled below) at 5.1% shorted, which suggests some sort of arbitrage play.

We also welcomed a new debutant onto the table last week, at 5.0% shorted, being the high-flying Afterpay Touch Group ((APT)).

Beyond that, I noted in last week’s Report that 13 of the ASX Top 20 stocks had experienced short position increases as the market plunged, suggesting to me a pick-up in investor demand for put option protection which market makers have to cover by shorting stock.

We ultimately saw a market rebound last week but we can see in the Top 20 table below that 14 of the 20 still saw short position increases, if only minor in the scheme of things.

No Movers & Shakers to highlight this week.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.0
IGO     17.2
DMP   16.2
JBH     15.4
HSO    14.3
RFG    13.6
GXY   12.2
HT1     11.5
FLT     10.9
VOC   10.9
MYX   10.6

In: VOC                                             

9.0-9.9

MYR, HVN, AAD, AAC, APO
 
Out: VOC, NWS                                                                               

8.0-8.9%

PLS, MTS, TGR, GXL, ORE, NXT

In: PLS                        Out: ORE, NXT

7.0-7.9%

BAP, NXT, NWS, NAN, BEN, GMA, TPM

In: NWS, NXT, NAN, BEN, GMA               Out: PLS, SHV

6.0-6.9%

ORE, WEB, SHV, GTY, WSA, AHG, RIO, KAR

In: ORE, SHV, RIO               Out: GMA, BEN, NAN, CCP, ISD

5.0-5.9%

SEK, ISD, IMF, QUB, CCP, WOW, NSR, JHC, BGA, CSR, APT

In: ISD, CCP, WOW, BGA, APT                 Out: RIO, LNG

                       
Movers & 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

APT GXY JBH NWS ORE PLS