The Short Report – 28 Jan 2021

This story features MESOBLAST LIMITED, and other companies. For more info SHARE ANALYSIS: MSB

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

Summary:

Month ending January 21, 2021.

Welcome to the first Short Report of 2021. As the Short Report has been taking a short holiday, this first report for the year highlights short position movements over the full month of its hiatus. As of next week, the Report will return to its usual weekly update cycle.

The trend in the short side of the Australian market as 2020 came to a close was one of steadily reducing short interest, in line with a steadily recovering stock market. It is notable this trend did not change over the summer break, despite the madness currently going on in the US.

The Wall Street short squeeze is a US issue, not an Australian one. But as I write, of course, the local market is tanking.

Given the longer timeframe, there have been several short position movements of one percentage point or more in the interim, but no new individual stock developments we didn’t know about before Christmas.

Salmon and prawn farmer Tassal Group ((TGR)) shorts have risen to 12.2% from 9.8%. My suggestion last year was this is due to fear of Chinese export bans extending beyond lobsters.

Biotech Mesoblast ((MSB)) shorts have risen to 10.3% from 8.0%. Late last year the company was denied FDA approval on its flagship drug, sending the company back into trials.

Network services provider Service Stream ((SSM)) shorts have risen to 7.3% from 5.8%. The company had been expected to win NBN contracts for all of Australia, but was passed over for NSW and Victoria.

Gold miners Northern Star Resources ((NST)) and Resolute Mining ((RSG)) have appeared in the table at 6.8% each, from below 5% prior. Resolute provided a disappointing production report last week, but the opposite was true for Northern Star.

We might conclude, therefore, that shorters are playing the company’s upcoming merger with Saracen Minerals ((SAR)).

On the other side of the ledger, nickel miner Western Areas ((WSA)) shorts have fallen to 7.0% from 10.8%. The miner suffered seismic issues in the September quarter. While yet to update on the December quarter, Western Areas has since enjoyed a substantial jump in the nickel price, which has likely sent the shorters scurrying.

A bleak northern winter has sent thermal coal prices rising, benefitting Whitehaven Coal ((WHC)), which last week posted a strong production report. Shorts have fallen from 6.1% to below 5%.

Weekly short positions as a percentage of market cap:

10%+
WEB   14.5
TGR    12.2
MSB    10.3

In: TGR           Out: WSA

9.0-9.9

No stocks

Out: TGR
                                               
8.0-8.9%

ING, AVH, IVC

Out: MSB, FLT, A2M

7.0-7.9%

A2M, FLT, MTS, SSM, MYR, WSA

In: WSA, A2M, FLT, SSM, MYR                 Out: Z1P

6.0-6.9%

FNP, NST, RSG, Z1P, EML

In: Z1P, NST, RSG, EML                  Out: BOQ, CUV, WHC                    

5.0-5.9%

NEA, EOS, CUV, ALK, PME, BVS, BOQ

In: CUV, BOQ, PME, BVS               Out: SSM EML, BEN, AMA, SXL, COE

Movers & Shakers

Movers & Shakers will return next week, as long as something moves & shakes.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.3	0.3	MQG	0.4	0.3
ANZ	1.1	1.0	NAB	1.3	1.3
APT	1.2	1.2	NCM	0.2	0.2
BHP	3.6	3.6	RIO	0.4	0.4
BXB	0.2	0.3	TCL	0.5	0.5
CBA	0.6	0.6	TLS	0.4	0.3
COL	0.5	0.4	WBC	1.0	0.9
CSL	0.1	0.1	WES	0.4	0.4
FMG	0.3	0.3	WOW	0.3	0.4
GMG	0.2	0.1	WPL	1.2	1.4

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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