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The Short Report

Weekly Reports | Mar 01 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 22, 2018

Last week saw the ASX200 rally steadily to the 5950 level. Over the same period, Wall Street struggled but held its ground, providing the local market with sufficient confidence to focus on the earnings result season.

Strength in the index over the period is almost entirely due to a positive results season, the busiest week of which was last week, with the beat/miss ratio running near the top end of the range over the last five years. Resultant broker upgrades have also well exceed downgrades, and the combination of the two is rare.

A slew of strong results nevertheless did little to spark short traders into action. A glance at the table below shows short position increases/decreases were very few and far between. Only two stocks are worth highlighting.

Myer ((MYR)) did not report earnings but provided a trading update nonetheless, which suggests either something must change soon or the department store chain is not long for this world. Shorts in Myer only increased slightly, but it was enough to put the stock back into its very familiar 10%+ shorted position.

Those recalling the David Jones takeover of some years ago might assume the same could happen to Myer, and indeed there is an anchor position in the stock by virtue of Solly Lew’s Premier Investments ((PMV)), which has a 10.8% stake and a very irate chairman.

The difference between David Jones and Myer, however, is that DJs owned its stores and Myer rents, meaning DJs always had a base property valuation and Myer doesn’t.

The other short position move of note last week came from toiletries and cosmetics company BWX Ltd ((BWX)), which saw its share price plunge -20% on its result release. BWX has been on a bit of an acquisition spree in the US, and clearly it is struggling to bed those down.

But the stock had rallied 74% over twelve months on sheer investor exuberance, taking it to a PE multiple suggesting excessive over-valuation. Either way, BWX has jumped into the table below at 6.3% shorted from below 5% shorted prior.

That about sums it up so no Movers & Shakers this week.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.8
IGO     17.1
DMP   15.9
JBH     15.8
HSO    14.2
RFG    13.7
GXY   13.1
HT1     11.7
VOC   11.4
MYX   10.8
FLT     10.8
MYR   10.2

In: MYR                                            

9.0-9.9

AAD, AAC, HVN
 
Out: MYR, APO                                                                               

8.0-8.9%

APO, NWS, MTS, PLS, GXL, TGR

In: APO, NWS                      

7.0-7.9%

BAP, NXT, GMA, BEN, NAN, TPM

Out: NWS

6.0-6.9%

WEB, ORE, SHV, GTY, AHG, BWX, KAR

In: BWX                     Out: WSA, RIO

5.0-5.9%

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

In: WSA, RIO, SUL              

                       
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

BWX MYR PMV