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The Short Report

Weekly Reports | Jan 31 2019

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. Percentages 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 January 24, 2019

The Short Report is now back in its standard format of highlighting week to week changes.

Last week saw the ASX200 rally to 5900 before returning from whence it came.

Last week also saw very little in the way of short position movements, as the table below suggests. Either the shorters have all now set themselves ahead of earnings result season or we’re yet to see last minute repositioning.

Only two stocks saw short position movements of one percentage point or more, being Inghams Group ((ING)) and Nanosonics ((NAN)). See Movers & Shakers below.

Otherwise we might note last week saw two big pre-result profit warnings, from Challenger ((CGF)) and Sims Metal Management ((SGM)). The stock prices of each fell off a cliff as a result.

To that end we see Challenger shorts have fallen to 6.7% from 7.0%, suggesting no great rush to take profits on short positions, while Sims has reappeared on the table at 5.8% shorted from less than 5% prior, suggesting the sharks may be gathering.

 Weekly short positions as a percentage of market cap:

10%+

SYR    16.9
GXY   16.6
JBH     16.0
ING     15.4
ORE    13.4
MTS    13.4
IVC     13.0
NXT    12.1
BWX   11.7
MYR   11.7
DMP   10.2

In: DMP          Out: NUF                   

9.0-9.9

NUF, HVN, IFL, SUL, BAL, SDA

In: NUF          Out: DMP                  
                                                                                               
8.0-8.9%

PLS, MSB

No changes

7.0-7.9%

NAN, AMC, MND, NWS, BKL

In: NAN                      Out: CGF       

6.0-6.9%

KDR, CGF, CCP, FLT, GMA, AMP, A2M, HT1, BEN, BOQ, BGA, SEK

In: CGF, SEK             Out: NAN, APT        

5.0-5.9%

APT, SGM, LYC, RSG, ARB, RWC, A2B, PTM, MLX, DHG, BIN, CLH, KAR, BHP, AAC

In: APT, SGM                        Out: SEK, VOC
                      
Movers & Shakers

Last week I noted shorts in medical technology company Nanosonics had fallen to 6.0% from 8.3% before Christmas. Last week the company provided an update, which resulted in both the share price rising and shorts returning to 7.5%.

This despite the one FNArena database broker covering the stock, Morgans, suggesting the update held no surprises and the stock looks attractive at current pricing.

Poultry producer Inghams Group has enjoyed a solid run in 2019 to date, which Citi suggests reflects the defensive nature of chook as a staple. But the broker downgraded the stock to Sell in December, warning of a significant cost headwind in the second half which leads to lower earnings and thus lower growth opportunities. Of six database brokers covering Inghams, none has a Buy rating.

Last week Inghams shorts rose to 15.4% from 14.3%.

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

CGF ING NAN SGM