The Short Report

This story features CHALLENGER LIMITED, and other companies. For more info SHARE ANALYSIS: CGF

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 June 6, 2019

Well. As one might conclude from the table below, in which only Challenger ((CGF)) saw any rise in short position amidst an overwhelming sea of green, that last week saw a substantial wave of short-covering. However, I’m just a little sceptical.

While the sheer number of stocks seeing short position reductions in one week is, I believe, unprecedented in the history of this Report, it is the magnitude of short positon changes that has me prepared to seriously doubt ASIC’s data.

One stock saw shorts reduce by almost five percentage points, three stocks by three-four percentage points, seven by two to three pps and three by one to two pps. One drop of three or more points usually rings alarm bells, and moves of more than two are not unusual but uncommon.

It is true to say that the ASX200 has undergone an extremely sharp rally, peaking at over 260 points from the June 4 low, when Trump threatened tariffs on Mexico, and that sharp rallies of this nature often feature a short-covering scramble. However, this Report cuts off at June 6, at which point only 50 points of that rally had been booked.

While I have tabulated all the positon changes below, I’m not going to bother listing all the stocks with big down-moves. For I fear that in this Report next week, everything will be back where it was. I’ve been bitten too many times by erroneous ASIC data.

That said, Amcor ((AMC)) was the stock dropping almost 5pps, to 2.7% from 7.5%, and given its acquisition of Bemis was completed in the week, justification is possible. However, similar stories don’t exist for every single stock.

If, by some quirk of fate, these numbers are indeed accurate, well there’s still nothing more specific to say than: short-covering rally.

Weekly short positions as a percentage of market cap:

10%+
ING     16.7
SYR    15.6
JBH     15.5
NUF    13.4
ORE    12.7
NXT    12.5
GXY   12.1
BAL    11.4
MTS    10.9

Out: BWX, BIN, SDA                      

9.0-9.9

BWX, BIN, SUL, HVN, DMP

In: BWX, BIN                        Out: RWC, IFL, PLS, SGM, KGN, PPT, CSR        
                                                                                   
8.0-8.9%

PPT, CSR, IFL, KGN, MYR

In: PPT, CSR, IFL, KGN                   Out: HUB, BKL, IVC, BGA                        

7.0-7.9%

HUB, IVC, PLS, BOQ, SDA, CGF, BKL, AMP, BGA

In: SDA, PLS, HUB, IVC, BKL, BGA, CGF                      Out: AMC

6.0-6.9%

RWC, SGM, CGC, GMA

In: SGM, RWC                       Out: CGF, WSA, NEC, SEK

5.0-5.9%

MSB, SEK, NEC, CLH, MIN, COE, SXY, CLQ, CTD

In: SEK, NEC             Out: MLX, OML, HT1, BEN, FLT

                       
Movers & Shakers

Not today.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	2.7	7.5	RIO	4.9	4.8
ANZ	0.8	0.8	S32	0.8	0.7
BHP	3.2	3.2	SCP	0.6	1.0
BXB	0.3	0.2	SUN	0.4	0.3
CBA	1.4	1.4	TCL	1.3	1.4
COL	1.4	1.4	TLS	0.6	0.5
CSL	0.4	0.3	WBC	1.7	1.7
IAG	0.4	0.7	WES	1.9	1.9
MQG	0.5	0.7	WOW	1.8	2.3
NAB	1.0	0.9	WPL	0.6	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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