The Short Report

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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 22, 2018

In the five trading days ending March 22, the ASX200 tracked sideways. It was on March 23 when trade war fears toppled the index, in line with Wall Street.

The table below shows that there was a lot of short position reduction going on lower down, albeit most moves were unsubstantial. The total number of ASX-listed stocks shorted by 5% or more fell to 46 from 50.

There were nevertheless notable moves in three stocks last week. I will highlight these with the caveat that often large percentage in short positions end up proving to be a simple ASIC data blip and prior positions are restored the following week.

Shorts in nickel miner Independence Group ((IGO)) fell to 12.0% from 16.0%.

Medical device company Nanosonics ((NAN)) saw its shorts rise to 10.1% from 8.4%.

Pet/vet chain Greencross ((GXL)) saw a reduction to 6.2% from 8.3%.

See Movers & Shakers below.

Weekly short positions as a percentage of market cap:

10%+

SYR    20.6
DMP   17.3
JBH     15.8
GXY   14.1
HSO    12.0
IGO     12.0
VOC   11.4
RFG    10.8
MYX   10.7
NAN   10.1
HT1     10.1

In: NAN          Out: MYR, FLT                                 

9.0-9.9

FLT, MYR, NWS, ORE, AAC, APO

In: FLT, MYR, NWS, ORE                                                                                      

8.0-8.9%

BWX, HVN, AAD, PLS

Out: NAN, NWS, ORE, GXL, TGR

7.0-7.9%

MTS, TGR, GMA

In: TGR           Out: BAP, APT         

6.0-6.9%

APT, BAP, TPM, BEN, GXL, QUB, ING

In: GXL, APT, BAP, ING                 Out: KAR, IVC

5.0-5.9%

IFL, KAR, SUL, CSR, IVC, JHC, SEK, BGA, RSG, GEM, AHG, RIO, WEB, MLX, NSR, SHV, CCP, WOW, GTY

In: KAR, IVC             Out: ING, NSR, SHV, CCP, WOW, GTY

                       
Movers & Shakers

Typically I ignore largish moves in the short positions of both nickel miners and battery related miners (eg Syrah Resources, Galaxy Resources), as these top-of-the-table names often experience a deal of short position volatility, jumping up and down from week to week. But a four percentage point drop for Independence Group is not to be sniffed at.

The nickel price tends to be the most volatile of all traded base metals and this month has seen mostly weakness in line with an increasing nickel surplus, ahead of trade war fears adding to volatility. Independence Group’s share price has traded accordingly. Last week I noted nickel peer Western Areas’ ((WSA)) shorts have fallen to below 5% when not so long ago, the two miners were shoulder to shoulder atop the 10% plus shorted table.

Are the shorters tiring of their nickel-related positions?

There has been no new news from Nanosonics, producer of high-level disinfection solutions for medical devices, since the company disappointed with its earnings result back in February and the share price tanked in response. Analysts called the selling overwrought, but the stock has chopped around ever since.

It is unclear why shorts have suddenly jumped to 10.1% from 8.4%, only to note the past few weeks have seen Nanosonics climbing quietly up the table.

Similarly, the share price of pet shop/veterinary clinic chain Greencross has tumbled steadily since the company’s February result, with increasing competition from on-line being a factor. Similarly, there has been no new news from the company of late, yet last week shorts fell to 6.2% from 8.3%.

Supposedly. 

 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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