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The Short Report

Weekly Reports | May 09 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 May 2, 2019

Last week saw the ASX200 drop back from its holiday-thin rally the week before, fall further on end-of-month squaring, and rally back on the fist of May with a bit of help from bank results.

Most of the red and green below represents bracket creep. However, we will note that having provided a profit warning earlier with its quarterly update, Flight Centre ((FLT)) appeared back in the 5%-plus shorted table last week at 5.2%.

The only other movements of interest last week were among the lithium miners.

See below. 

Weekly short positions as a percentage of market cap:

10%+

SYR    17.3
ING     16.1
JBH     14.9
GXY   14.9
NXT    14.8
NUF    14.7
ORE    12.2
MTS    11.8
BAL    11.5
BWX   10.9
PLS     10.0

In: PLS            Out: SDA                   

9.0-9.9

SDA, SUL, IVC, PPT, IFL, HVN

In: SDA                      Out: PLS, DMP, KGN, CSR
                                                                                               
8.0-8.9%

BOQ, DMP, AMC, KGN, SGM, CSR, MYR, BKL, HUB

In: DMP, KGN, CSR, HUB              Out: RWC                              

7.0-7.9%

RWC, BIN

In: RWC         Out: HUB

6.0-6.9%

BGA, AMP, WSA, MSB, CGF

No changes    

5.0-5.9%

RSG, COE, MLX, FLT, CGC, SEK, GMA, HT1, RIO, BEN, LNG

In: FLT, CGC, SEK               Out: DHG, KDR, NEC
                   
Movers & Shakers

Last week lithium miner Kidman Resources ((KDR)) received a takeover bid from an unlikely suitor in Wesfarmers ((WES)), or at least it would have been unlikely had Wesfarmers not already taken a swing at rare earths miner Lynas Corp ((LYC)). Kidman’s share price shot up over 40% on the news.

The takeover bid lit a fire under all lithium miners, which variously rallied strongly on the news. Given their representation at mostly the top end of the shorted table, one might presume short-covering had a lot to do with those rallies.

However, the story is not so simple.

Kidman itself fell out of the 5%-plus shorted table from a prior 5.3%, while shorts in Galaxy Resources ((GXY)) fell to 14.9% from 16.9%. But shorts in Pilbara Minerals ((PLS)) rose to 10.0% from 9.5% and Orocobre ((ORE)) shorts were unmoved.

Graphite miner Syrah Resources ((SYR)) was another to see a related price jump, on the wider battery theme, but shorts in Syrah remained little changed.

So it’s not cut and dried. Wesfarmers has scoffed at suggestions it’s making a move on the electric vehicle theme, yet lithium is used in batteries and rare earths (such as neodymium and dysprosium) are used to make magnets for electric motors. So draw your own conclusions.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
AMC 8.8 8.8 RIO 5.1 5.2
ANZ 1.2 1.2 S32 1.2 1.3
BHP 3.4 3.5 SCP 1.2 1.3
BXB 0.2 0.1 SUN 0.3 0.3
CBA 1.8 1.8 TCL 1.4 1.6
COL 1.7 1.8 TLS 0.5 0.5
CSL 0.3 0.4 WBC 2.1 2.1
IAG 0.5 0.3 WES 2.0 1.9
MQG 0.3 0.3 WOW 2.5 2.7
NAB 0.9 0.9 WPL 0.7 0.7

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

FLT GXY KDR LYC ORE PLS SYR WES