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The Short Report

Weekly Reports | Feb 14 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. 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 7, 2019

Last week saw the ASX200 rally hard, from around 5850 all the way to 6100. Thank you Mr Hayne.

To that end, and given all the attention the big banks received with regard hedge funds setting themselves short, we note from the Top 20 table below that ANZ Bank ((ANZ)) shorts fell to 1.4% from 1.5% last week, Commonwealth Bank ((CBA)) to 2.1% from 2.3% and Westpac ((WBC)) to 1.9% from 2.1% while National Bank ((NAB)) saw no change at 0.7%.

These may seem like minimal changes, and indeed minimal short positions, but we have to remember that in market cap terms, the four banks alone make up some 20% of the ASX200. So not insignificant.

There was a bit of action at the top of the most shorted table last week, although no move at the time reflected an earnings report release.

Poultry producer Inghams Group ((ING)) has moved into second spot on the table with an increase to 15.7% shorted from 14.8%. While Inghams produces poultry for the table it also produces stock feed, and will be impacted by droughts and flooding rains.

The town of Ingham in Queensland was one of the worst hit by flooding, but there’s no connection.

Lithium producer Galaxy Resources ((GXY)) saw shorts fall to 15.3% from 16.9% but short positions in the battery-related space are highly volatile.

JB Hi-Fi ((JBH)) shorts fell to 14.6% from 15.6% ahead of Monday’s earnings release, which scored a “not bad” and resulted in only a modest share price increase.

Nanosonics ((NAN)) shorts rose to 7.0% last week from 5.5%. But given they were 7.5% the week before that, and 6.0% the week before that, I’m going to ignore it.

A few familiar faces returned to the bottom end of the 5%-plus shorted table last week, but they’d been lurking not far below anyway.

Recent trading updates from auto-related companies suggest things aren’t quite as bad as feared for the consumer-facing car industry, hence those stocks have enjoyed a bit of a recovery. Which is probably why we see Automotive Holdings ((AHG)) and ARB Corp ((ARB)) back in the table.

We also welcome a newbie to the table in funds management platform Hub24 ((HUB)), at 5.6% shorted. Analysts are still not entirely sure how the outcome of the Royal Commission will impact on the platform space.

No Movers & Shakers this week.

Weekly short positions as a percentage of market cap:

10%+

SYR    16.7
ING     15.7
GXY   15.3
JBH     14.6
IVC     13.3
ORE    13.0
MTS    12.7
BWX   11.8
MYR   11.3
DMP   10.9

No changes                

9.0-9.9

BAL, HVN, SDA, PLS

In: SDA, PLS             Out: SUL, NUF                     
                                                                                               
8.0-8.9%

NUF, SUL, IFL

In: NUF, SUL             Out: SDA, PLS, MSB

7.0-7.9%

MSB, RWC, NAN

In: MSB, RWC, NAN                        Out: BKL, MND       

6.0-6.9%

AMC, MND, AMP, BKL, SGM, GMA, RSG, A2M, BEN, BOQ, SEK, CCP, HT1

In: MND, BKL, RSG, SEK               Out: RWC, FLT, NWS, BGA           

5.0-5.9%

CGF, BGA, LYC, HUB, NWS, APT, A2B, DHG, KAR, AHG, WSA, PTM, BIN, MLX, CLH, ARB, KDR

In: BGA, NWS, HUB, DHG, AHG, WSA, BIN, ARB                   Out: NAN, SEK, RSG

                       
Movers & Shakers

See above.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
AMC 6.9 6.8 RIO 3.9 3.6
ANZ 1.5 1.4 S32 0.7 0.7
BHP 4.5 4.8 SCP 0.9 1.1
BXB 0.5 0.4 SUN 0.8 0.8
CBA 2.3 2.1 TCL 1.5 1.5
COL 1.9 1.8 TLS 0.5 0.4
CSL 0.2 0.2 WBC 2.1 1.9
IAG 0.3 0.3 WES 1.5 1.6
MQG 0.3 0.3 WOW 2.8 2.9
NAB 0.7 0.7 WPL 0.8 0.9

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

AHG ANZ ARB CBA GXY HUB ING JBH NAB NAN WBC