The Short Report

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

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 March 8, 2018

Last week was a choppy one as markets first reacted negatively to what appeared to be blanket US tariffs to be imposed on steel and aluminium, before recovering on hints from the president there may be exemptions for certain allies. By week’s end, the ASX200 was pretty much back where it had started.

There was not a lot of movement in short positions last week. The only stock to post a move of a percentage point or more was lithium miner Galaxy Resources ((GXY)), which saw a rise to 14.2% from 13.1%, but such weekly moves in the battery-related mining space, up and down, are frequent.

There are a couple of moves worth highlighting nonetheless.

Genworth Mortgage Insurance Australia ((GMA)) saw a 14% spike in its share price over a couple of sessions last week, having fallen steadily all year. Apparently Genworth’s US parent, which holds a controlling stake in the Australian entity, has a large refinancing obligation coming up which may lead to the parent offloading its stake in the child.

Traders noted last week that a local broker appeared to be amassing GMA shares which, it is assumed, may provide for that broker to offer Genworth US a “block trade”, meaning an exit from its stake in one hit. The share price took off, and short-covering was apparent in the move given shorts in GMA fell to 6.6% last week from 7.1% the week before.

We recall that shares in embattled department store chain Myer ((MYR)) dropped substantially following yet another profit warning last month, but suddenly jumped 15% in a session early last week. No one knew why, and as far as I can tell, it’s still a mystery – Solomon Lew is reported as wanting to oust the Myer board, but not increase Premier Investments' ((PMV)) stake at this stage.

Short-covering was not a major factor in the spike. Myer shorts fell last week, but only to 9.8% from 10.2%.

I have also been following the fortunes of toiletry/cosmetics company BWX ltd ((BWX)) in recent Reports and short positions continued to build last week. Over the four week’s since releasing an earnings result disappointment, BWX shorts have risen to 5.0%, then 6.3%, then 7.6%, and last week to 8.2%.

That’s all for this week. No Movers & Shakers.

Weekly short positions as a percentage of market cap:

10%+

SYR    22.1
DMP   17.1
IGO     16.3
JBH     16.0
GXY   14.2
HSO    13.5
RFG    12.9
HT1     11.8
VOC   11.7
FLT     10.9
MYX   10.7

Out: MYR                              

9.0-9.9

MYR, AAC, GXL, APO, AAD
 
In: MYR, GXL           Out: HVN                                                                  

8.0-8.9%

NWS, HVN, PLS, ORE, NAN, BWX, MTS, TGR

In: HVN, ORE, BWX                        Out: GXL      

7.0-7.9%

BAP

Out: ORE, BWX, BEN, GMA

6.0-6.9%

BEN, APT, TPM, GMA, SHV, KAR, QUB

In: BEN, GMA, QUB                        Out: WEB

5.0-5.9%

SEK, AHG, SUL, CCP, NSR, WEB, ING, JHC, IVC, CSR, BGA, IFL, WOW, GTY, RIO, MLX, ABC, WSA

In: WEB, ING, MLX                         Out: QUB, IMF, ISD

                       
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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