article 3 months old

The Short Report

Weekly Reports | Oct 18 2018

This story features LYNAS RARE EARTHS LIMITED. For more info SHARE ANALYSIS: LYC

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 UIKeyInputLeftArrowamounts 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 October 11, 2018

Last week saw the ASX200 head south in a hurry, initially dropping ahead of Wall Street and then dropping along with Wall Street. However, it was also a week in which M&A hit the headlines.

From last week’s Report:

“We note accounting software firm MYOB ((MYO)) has been hanging around on the table for some time, last week at 7.0%, but this week received a takeover offer which saw the stock jump 19% on the day. Short-covering was no doubt in play.

“We’ll keep an eye out in next week’s Report for pet-vet chain Greencross ((GXL)), which also became an M&A play this week after acknowledging more than one approach. Its share price jumped 18%, and last week it was 10.4% shorted.”

And so it came to pass. MYOB shorts fell to 5.4% last week from 7.0% and Greencross shorts to 8.8% from 10.4%.

More from last week’s Report:

“Satellite operator Speedcast International ((SDA)) has not recovered any ground since falling to earth on a disappointing earnings result in late August. It has since been creeping up the table, last week moving to 7.3% from 6.5%.”

Last week Speedcast shorts rose to 8.2%.

A couple of weeks ago I noted rare earth mineral producer Lynas Corp ((LYC)) had been enjoying a revival before being cut short by news the new Malaysian government was planning to review the licence for the company’s processing plant (LAMP) located in the country. That review was to be headed by a previously staunch LAMP critic, concerned over radioactive by-product resulting from the process.

The stock took a hit and despite a couple of false starts has not managed to recover, even as the government minister in question has elected to withdraw from the position of leading the review so to avoid perceptions of bias.

Last week Lynas shorts rose to 7.9% from 5.9%.

No Movers & Shakers this week. 

Weekly short positions as a percentage of market cap:

10%+

JBH     20.0
GXY   16.7
ORE    16.6
SYR    16.1
ING     13.2
MTS    12.4
BWX   12.2    
DMP   12.1
MYR   11.1
IVC     10.5

Out: GXL                              

9.0-9.9

GEM, NEC, CSR, HVN, NWS, NXT, IFL

Out: NUF
                                                                                               
8.0-8.9%

NUF, GXL, SUL, NAN, SDA

In: GXL, NUF, SDA

7.0-7.9%

LYC, PLS, AAC, BAL, KDR, MND

In: LYC, BAL, KDR, MND              Out: SDA, IGO, MYO, VOC

6.0-6.9%

MLX, IGO, FLT, HT1, BOQ, RSG, SIG, VOC, SEK, BIN

In: IGO, VOC, BOQ              Out: KDR, BAL, MND

5.0-5.9%

MSB, GMA, NWL, KAR, ALX, AMP, MOC, GNC, CLQ, BGA, MYO, BKL, CAB, CQR, API, ECX, SGM

In: MYO, CLQ, BGA, ECX, SGM               Out: LYC, BOQ, BLA, TNE

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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

LYC

For more info SHARE ANALYSIS: LYC - LYNAS RARE EARTHS LIMITED