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The Short Report – 05 Dec 2019

Weekly Reports | Dec 05 2019

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

Summary:

Week ending November 28, 2019

Last week the ASX200 recovered from the Westpac-inspired sell-off and once again shot up to new highs on little more than momentum, before it all once again ended in tears this week.

There’s a lot of shuffling around on the table below, mostly bracket creep, but a couple of moves are worth noting.

Kirkland Lake Gold ((KLA)) shorts had jumped to 12% then to 7% and back again four weeks in a row, before last week breaking the pattern and rising to a table-topping 17.9%.  Last week the Canadian based miner announced a takeover of compatriot Detour Gold and the share price promptly fell -9%.

Still in the dark here, other than to reiterate that Kirkland is listed in all of Canada, the US and Australia, opening up geographical arbitrage opportunity.

Fruit & veg grower Costa Group ((CGC)) has had an annus horribilis, and not just because of the drought, forcing a capital raising. Discounted capital raisings provide the perfect opportunity for successful shorts to cash out by applying for new shares. Costa shorts fells to 9.6% from 11.6% last week.

Bank of Queensland ((BOQ)) shorts fell to 7.4% from 12.3%. Just slot BOQ in for CGC in the paragraph above.

Bellamy’s Australia ((BAL)) shares have rallied 60% since the Chinese bid for the company, and strangely received Treasurer approval. Bellamy’s fell off the 5%-plus table two weeks ago from 8.4% shorted. Shares in peer a2 Milk ((A2M)) have consequently risen 20% in the same time frame, on the PE re-rating implied for the sector by the Chinese bid, and the simple hope a2 Milk is the next target.

The shorters don’t think so. Shorts in a2 Milk have been gradually rising ever since, and last week hit 9.1%, up from 8.0%.

And finally just a shout out to the shorters of oOh!media ((OML)). Last week OML shorts sat at 7.5%. Yesterday a trading update had the out-of-home advertiser leaping 24%.

No Movers & Shakers this week.?

Weekly short positions as a percentage of market cap:

10%+
KLA    17.9
GXY   17.0
SYR    16.0
GWA  14.9
ING     14.0
ORE    13.9
SDA    13.1
NXT    11.6
JBH     11.3
WEB   11.0
MIN    10.6
BGA   10.5
NEA    10.3
BKL    10.3
DMP   10.2
MTS    10.1
HUB   10.0

In: MTS           Out: BOQ, CGC

9.0-9.9

CGC, A2M

In: CGC, A2M            Out: MTS, IVC
                                               
8.0-8.9%

IVC, PPT, SUL, CLH, HVN

In: IVC, CLH             Out: A2M, BIN, CGF

7.0-7.9%

CGF, NCZ, PLS, BIN, NUF, RSG, OML, BOQ, IFL, MYR

In: BOQ, CGF, BIN               Out: CLH, DCN

6.0-6.9%

CUV, BWX, DCN, RWC, SGM, CTD

In: DCN, CTD                        Out: SLR

5.0-5.9%

SLR, CMW, NWL, COE, CLQ, AMP, WOR, PNI, RFF, LNG, GMA, MYX, MLX, NEC, GNC

In: SLR, WOR, PNI, MYX, MLX, GNC                  Out: CTD, PGH, SAR, OGC

                       
Movers & Shakers

See above.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
AMC 1.1 0.9 RIO 4.1 3.9
ANZ 0.7 0.7 S32 1.6 1.7
BHP 3.3 3.4 SCG 0.4 0.4
BXB 0.1 0.2 SUN 0.5 0.3
CBA 0.6 0.7 TCL 0.4 0.4
CSL 0.1 0.1 TLS 0.3 0.3
GMG 0.3 0.4 WBC 0.6 0.7
IAG 0.4 0.5 WES 0.6 0.7
MQG 0.3 0.4 WOW 0.8 0.9
NAB 1.0 0.8 WPL 0.8 1.0

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.

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

A2M BOQ CGC KLA OML