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The Short Report

Weekly Reports | May 30 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 23, 2019

Last week saw the ASX200 rocket to 6500 on the Coalition’s election victory, an easing of mortgage restrictions from APRA and a big hint that RBA was set to cut. It’s been a different story since.

As the sea of red on the table below suggest, short traders took the opportunity provided by the rally to increase positions. No less than four stocks saw short position increases of one percentage point or more last week, with only one going the other way.

See below.

Of particular note last week was movement in big bank short positions, given the election/APRA/RBA news was worth about 10% in gains for the Big Four last week. The banks were not carrying major short positions in relative terms but their significant market caps mean any small move can have a big impact.

Last week saw ANZ Bank ((ANZ)) shorts fall to 0.8% from 1.1%, Commonwealth Bank ((CBA)) fall to 1.4% from 1.7%, National Bank ((NAB)) fall to 0.8% from 1.2%, and Westpac ((WBC)) fall to 1.8% from 2.5%. As was suspected, the big bank bounce had a lot to do with short-covering.

See table below. 

Weekly short positions as a percentage of market cap:

10%+
ING     17.4
SYR    16.0
NUF    15.6
JBH     15.4
NXT    15.1
GXY   14.0
BAL    14.0
ORE    12.5
BWX   11.9
MTS    11.6
BIN     11.1
SDA    10.5
IFL      10.1

In: BIN, IFL              

9.0-9.9

SUL, KGN, CSR, RWC, SGM, BKL, PLS, PPT, HVN

In: RWC, SGM, PLS, HVN               Out: BIN, IFL                                                                                               
8.0-8.9%

IVC, MYR, HUB, DMP, BGA

In: BGA                      Out: RWC, SGM, PLS, HVN, AMC                        

7.0-7.9%

AMC, BOQ, AMP

In: AMC, AMP           Out: BGA

6.0-6.9%

WSA, CGF, SEK, MSB, NEC

In: NEC                      Out: AMP

5.0-5.9%

GMA, RSG, BEN, MLX, COE, HT1, CLQ

In: MLX, CLQ           Out: NEC

Movers & Shakers

The rollercoaster ride for battery-related miners, which are amongst the most shorted stocks on the market, continued last week. Graphite miner Syrah Resources ((SYR)) shot up ahead of its AGM, at which guidance was reaffirmed, and then shot back down again. At some point Syrah shorts were reduced to 16.0% from 17.2%, leaving Inghams Group ((ING)) currently playing chicken as the most shorted stock.

The week before last, Bingo Industries ((BIN)) was the only stock that week to see a short position move of one percentage point or more. As noted in last week’s Report, Bingo shorts rose to 9.9% from 8.2%.

Last week they rose to 11.1%.

The fortunes of infant formula exporter Bellamy’s Australia ((BAL)) have taken a turn, in least as far as market perception is concerned, since US-China trade negotiations broke down and tit-for-tat recriminations were rekindled. Deriving the bulk of its earnings from China, Bellamy’s has become the shorters’ pin-up for trade war escalation, and shorts rose last week to 14.0% from 12.9%.

Skin care company BWX ltd ((BWX)) issued its third profit warning in seven months last week while pulling the trapdoor on its only recently appointed new CEO. Hopes are now pinned on a new new CEO, formerly of Blackmores.

The share price of plumbing parts supplier and former market darling Reliance Worldwide ((RWC)) took a dive (-26%) on May 13 when the company downgraded earnings guidance. The company assured there were no structural issues.

Channel partners had recently taken to reducing their inventories, Reliance explained, while a mild US winter meant a lot fewer burst pipes to repair with new parts. Morgan Stanley agreed that the downgrade was largely a one-off affair when it initiated coverage of the stock last week with an Overweight rating.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
AMC 7.8 8.2 RIO 4.5 4.5
ANZ 0.8 1.1 S32 1.0 1.1
BHP 3.3 3.4 SCP 1.0 0.9
BXB 0.2 0.1 SUN 0.3 0.2
CBA 1.4 1.7 TCL 1.3 1.3
COL 1.4 1.5 TLS 0.5 0.5
CSL 0.2 0.2 WBC 1.8 2.5
IAG 0.8 0.6 WES 1.9 1.9
MQG 0.6 0.4 WOW 2.6 2.4
NAB 0.8 1.2 WPL 0.7 0.6

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

ANZ BAL BIN BWX CBA ING NAB RWC SYR WBC