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The Short Report – 25 Nov 2021

Weekly Reports | Nov 25 2021

This story features TEMPLE & WEBSTER GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TPW

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

Summary:

By Greg Peel

Week Ending November 18, 2021.

Last week was another weak one for the ASX200, as the Australian market failed to find any traction despite strength on Wall Street. There was some angst over RBA rhetoric, and the index is still struggling through this week.

A bit of shuffling of the deck chairs among stocks shorted 5% or more last week, with only two stocks posting changes in short position of one percentage point or more. One is Kirkland Lake Gold ((KLA)), and we recall from last week’s Report:

“One exception is Kirkland Lake Gold ((KLA)), which jumped to 21.9% shorted from 9.3% and which we can completely ignored.  The Canadian-based miner is listed in three countries, thus opening up occasional geographic arbitrage opportunities. It could well disappear off the table next week.”

It didn’t, but it did drop to 17.9%.

The other is online furniture & homewares retailer Temple & Webster ((TPW)), which saw its shorts rise to 7.6% from 5.9%. As a lockdown winner, T&W’s share price started sliding on November 1 – the day Sydney was reopened, and then Melbourne was reopened soon after.

Are the glory days over?

Another stock to note is BHP Group ((BHP)), which has been quietly climbing the table and is now at an unfamiliar 7.1% shorted. It’s not a play on the iron ore price, nor anything else sinister, but rather a reflection on BHP moving closer to the end of its UK dual listing as well as the de-merger of its Petroleum division in a scrip-swap with Woodside Petroleum ((WPL)).

Such share register disruptions provide opportunities to play a risk arbitrage. BHP will likely revert back to its low level of shorts once the whole ball game is completed.

We also welcomed a newbie last week, in the form of Appen ((APX)) at 5.4% shorted. See below.

Weekly short positions as a percentage of market cap:

10%+
KLA    17.9
FLT     12.7
KGN   11.7
RBL    10.8

No changes    

9.0-9.9

EOS, Z1P

In: EOS           Out: WEB
           
8.0-8.9%

WEB, MSB, COE

In: WEB          Out: EOS, ING

7.0-7.9%

ING, TPW, PNV, BHP

In: ING, TPW, BHP  

6.0-6.9%

MND, OBL, BET, A2M, MTS, AMA

In: OBL, AMA                       Out: BHP

5.0-5.9%

APX, TGR, BPT

In: APX                      Out: TPW, OBL, AMA, RSG

Movers & Shakers

Artificial intelligence company Appen saw its share price surge by 14% last week on a read-through of a strong earnings report from Canadian-based rival Telus International, which Citi noted pointed to improving trends for AI data projects from the major technology companies. 

Alas, Appen has given a lot of that back this week on the gravitational pull the local tech sector is drawn into every time the Nasdaq has a tumble.

As was the case with Polynovo last week, there was no new news from Appen, but smaller, riskier stocks are typically the first to be jettisoned at the first sign of trouble.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
ALL 0.1 0.1 MQG 0.3 0.2
ANZ 0.6 0.6 NAB 0.7 0.7
APT 0.9 1.0 NCM 0.4 0.3
BHP 7.1 7.2 RIO 0.3 0.3
BXB 0.5 0.4 TCL 0.3 0.3
CBA 0.7 0.6 TLS 0.2 0.2
COL 0.5 0.5 WBC 1.0 1.1
CSL 0.2 0.2 WES 0.3 0.2
FMG 2.6 2.5 WOW 0.5 0.4
GMG 0.0 0.0 WPL 1.5 1.3

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

APX BHP TPW

For more info SHARE ANALYSIS: APX - APPEN LIMITED

For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED

For more info SHARE ANALYSIS: TPW - TEMPLE & WEBSTER GROUP LIMITED