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The Short Report – 22 August 2019

Weekly Reports | Aug 22 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 August 15, 2019

Last week saw the ASX200 began with the ASX200 trying to recover from the China currency fear wash-out before US yield curve inversion sparked another sell-off.

All the while the local earnings season was ramping up.

On that note I suggested last week that a jump in JB Hi-Fi’s ((JBH)) share price on result would likely reflect short-covering. Well, it appears not. JB Hi-Fi shorts have increased to 14.5% from 14.4%.

GWA Group ((GWA)) delivered a disappointing result this week and it looks like the shorters were ahead of the game. Last week GWA shorts rose to 9.9% from 8.3%.

Dacian Gold ((DCN)) saw its shorts rise to 8.3% from 7.10%. The gold miner had issued a production downgrade the week before.

The big mover & shaker last week was AMP ((AMP)). Its shorts fell to 6.5% from 9.7%. See below.

Weekly short positions as a percentage of market cap:

10%+
ING     19.5
NUF    18.7
GXY   16.0
ORE    15.9
BAL    15.8
JBH     14.5
SYR    14.2
NXT    14.0
DMP   12.0
BWX   11.9
HUB   11.6
PLS     11.2
BGA   11.0
RWC   10.3

In: RWC         Out: HVN      

9.0-9.9

GWA, BIN, HVN, SGM, MTS, BOQ, IFL, KGN

In: HVN, GWA                      Out: RWC, AMP
                                                           
8.0-8.9%

PPT, BKL, IVC, SDA, DCN, SUL, CGC

In: BKL, DCN            , CGC              Out: GWA, WSA                              

7.0-7.9%

WSA, CLH, MYR, CSR, CGF

In: WSA                      Out: BKL. DCN, CGC

6.0-6.9%

GEM, A2M, AMP, NEC, SFR, COE, CTD, NCZ

In: AMP, SFR, CTD               Out: ELD, GMA

5.0-5.9%

ELD, LNG, GMA, OML, CLQ, CUV, MSB, NWL, SXY, AWC

In: ELD, GMA, AWC                        Out: CTD, SFR, SAR

                      
Movers & Shakers

To cap off its annus horribilis, the once-great AMP managed to post a slight beat of expectations with its FY19 result. But a 12% leap in the share price over two days post-result was all about the sale of the company’s Life business.

We recall that the New Zealand regulator knocked back the sale to Resolution Life back in July, sparking a -16% share price plunge. AMP’s reinvention and recovery strategy had to that point been based on funding from the Life sale. In order to progress the sale, AMP was forced to take a lower price to cover Resolution’s cost of seeing to the regulator’s issues.

AMP was also forced to announce an equity raising. Such an announcement is music to a shorter’s ear. Profits can be taken on short positions simply by participating in the (discounted) raising. Given a drop in shorts to 6.5% from 9.7%, that opportunity was not completely dismissed.? 

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
AMC 0.5 0.9 RIO 4.8 4.7
ANZ 0.7 0.7 S32 1.1 1.4
BHP 3.3 3.0 SCP 0.7 0.7
BXB 0.2 0.3 SUN 0.7 0.5
CBA 1.2 1.1 TCL 0.5 0.8
COL 1.0 1.0 TLS 0.4 0.4
CSL 0.2 0.3 WBC 1.1 1.1
IAG 0.5 0.4 WES 1.0 1.1
MQG 0.7 0.7 WOW 1.6 1.8
NAB 0.5 0.6 WPL 0.9 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

AMP DCN GWA JBH