The Short Report – 31 Oct 2019

This story features BANK OF QUEENSLAND LIMITED, and other companies. For more info SHARE ANALYSIS: BOQ

See Guide further below (for readers with full access).

Summary:

Week ending October 24, 2019

Ongoing US-China trade optimism and positive US earnings reports had the ASX200 rallying choppily last week. There was a bit more action in terms of short position changes last week but only a couple of particular note.

Firstly I’ll note shorts in Kirkland Lake Gold ((KLA)) fell to 10.1% last week from 14.5%, which does not detract from my theory US hedge funds sold the stock in Australia to get ahead of sellers in the US.

Bank of Queensland ((BOQ)) shorts jumped to 12.1% from $10.9%. See below.

Nearmap ((NEA)) shorts rose to 10.3% from 8.4%. This should thus qualify as a “Mover & Shaker”, but for the fact it is unclear why the shorters are putting the boot in. There has been no news out of the company recently and no updates from FNArena database brokers. As a tech stock Nearmap tends to move with the Nasdaq, but selling took hold last week in the midst of the WiseTech Global controversy, which has nothing to do with Nearmap.

We might simply note that tech high-flyers – pardon the pun in this case – do occasionally fall into holes following a period of over-exuberance.

One stock to note ahead of next week’s Report is Costa Group ((CGC)). Last week Costa shorts fell to 8.6% from 9.1% ahead of this week’s profit warning and announcement of a heavily discounted capital raising, which saw the stock drop -28%. Someone went a little early there.

And we might also note this week has seen some big rallies for lithium miners, due to protests in Chile. Short-covering would explain a lot of it, given two of them are numbers one and two on the table.

Weekly short positions as a percentage of market cap:

10%+
SYR    17.6
GXY   16.9
ORE    14.5
ING     13.8
NXT    13.6
GWA  12.5
JBH     12.3
BOQ   12.1
SDA    10.7
DMP   10.6
HUB   10.3
NEA    10.3
BIN     10.2    
KLA    10.1

In: NEA          Out: BKL

9.0-9.9

BKL, IVC

In: BKL          Out: NUF, CGC, PPT
                                               
8.0-8.9%

PPT, NUF, MTS, CGC, WEB, BGA, RWC, SAR, DCN, BWX, IFL

In: PPT, NUF, CGC, WEB, SAR                  Out: NEA, HVN, SUL

7.0-7.9%

MIN, HVN, BAL, SUL, CLH, CGF, A2M, OML, SGM, MYR

In: HVN, SUL                        Out: WEB, SAR, PLS

6.0-6.9%

NCZ, PLS, SLR, AMP, RSG

In: PLS                        Out: CSR

5.0-5.9%

CSR, RFF, ADH, CLQ, COE, CUV, NWL, NEC, PGH, CTD, GEM, LNG,  GMA, CMW, KAR, SEK

In: CSR, KAR                        Out: FMG, SFR, GUD, KGN

Movers & Shakers

Bank of Queensland’s FY19 earnings result, released last week, disappointed brokers who had already expected weakness. The bank also cut its dividend, but that came as no surprise, with further cuts on the cards.

The result highlights the difficult position the regionals now find themselves in thanks to the indiscretions of their mega-cap peers. More onerous post-RC regulation applies to regionals as well, despite much smaller capital bases. Brokers agree the outlook is challenging, and requiring of Bank of Queensland to seriously rethink its entire strategy. This will cost money, and result in earnings rebasing and more pressure on capital.

Six of seven FNArena database brokers have a Sell or equivalent rating on the stock. The shorters are moving in for the kill, taking their positions up to 12.1% from 10.9%.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	0.7	0.7	RIO	4.4	4.6
ANZ	0.6	0.6	S32	1.4	1.3
BHP	3.3	3.3	SCG	0.4	0.6
BXB	0.3	0.2	SUN	0.5	0.6
CBA	0.7	0.7	TCL	0.3	0.3
CSL	0.1	0.2	TLS	0.2	0.2
GMG	0.2	0.1	WBC	0.8	0.8
IAG	0.5	0.5	WES	0.6	0.7
MQG	0.3	0.3	WOW	0.9	0.9
NAB	0.6	0.7	WPL	1.0	0.8

To see the full Short Report, please go to this link

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:

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	0.7	0.7	RIO	4.4	4.6
ANZ	0.6	0.6	S32	1.4	1.3
BHP	3.3	3.3	SCG	0.4	0.6
BXB	0.3	0.2	SUN	0.5	0.6
CBA	0.7	0.7	TCL	0.3	0.3
CSL	0.1	0.2	TLS	0.2	0.2
GMG	0.2	0.1	WBC	0.8	0.8
IAG	0.5	0.5	WES	0.6	0.7
MQG	0.3	0.3	WOW	0.9	0.9
NAB	0.6	0.7	WPL	1.0	0.8

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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