The Short Report

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

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:

Please note: The ASIC Short Report on the FNArena website now appears to be updated by the regulator.

Week ending February 12, 2015.

The ASX200's historic 12-day uninterrupted rally peaked out the week in question as the rebound in resource stocks and the quest for yield took a breather, albeit brief. The local results season began to warm up and shorting activity was again relatively minimal across the bulk of our 5% plus shorted table despite a bit of bracket creep.

Special mention must again go to Myer ((MYR)), which has now hit the 20% shorted mark. I don't think long-time short favourite Cochlear ((COH)) ever quite scaled such giddy heights. Speaking of Cochlear, it's gradual slide now sees the stock down to only 8.4% shorted. Retailers featured in the week in question but the other big moves were short reductions, with Super Retail and The Reject Shop both seeing some short covering.

The mining & energy service companies having reported to date have been missing even the most downbeat of forecasts, which is likely why NRW Holdings, yet to report, has been gradually climbing up the short table. Another notable, yet very gradual, climber of late is Orica ((ORI)).
 

Weekly short positions as a percentage of market cap:

10%+

MYR   20.0
MTS    15.9
UGL    11.6
FMG   10.9
AGO   10.3
CDD   10.2
SUL    10.1
NXT    10.1

No changes

9.0-9.9%

KAR, PBG, JBH, ACR, KCN, MIN

In: MIN                       Out: ALQ, COH

8.0-8.9%

SGM, ALQ, SXY, ORI, COH, PRY, ASL, FLT, MND, BCI

In: ALQ, COH, ORI, MND              Out: MIN, TRS

7.0-7.9%

WHC, CAB, TRS, JHC, NWH, MRM, VRT

In: TRS, NWH                        Out: ORI, MND, MGX

6.0-6.9%

MSB, RRL, MGX, GNC

In: MGX                     Out: NWH, NWS, DOW, CRZ, DSH

5.0-5.9%

CRZ, DSH, DOW, ARI, NWS, ILU, TPI, TEN, GWA, WOW, IIN, SGT

In: NWS, DOW, CRZ, DSH, IIN, SGT                    Out: AGF, BDR, VET, SXL
 

Movers and Shakers

Super Retail ((SUL)) reported this week and announced store closures but in the week in question the shorters decided to pair back positions. Super shorts fell 1.0ppt to 10.1% from 11.1% but the stock is still among the most shorted retailers on the ASX alongside peers Myer, Metcash and JB Hi-Fi.

However another peer and former member of the 10% plus club, The Reject Shop ((TRS)), also reported this week and although the result was in line with a January profit warning, clearly the shorters had hoped for further bad news. TRS shares have shot up on the result but short covering was already underway the week before, given TRS shorts fell by 1.2ppt to 7.6% from 8.8%.

A handful of mining & energy services companies have reported to date in the season and while expectations were low, results have still disappointed. Analysts see the mining downturn cycle running deeper and longer which is likely why NRW Holdings ((NWH)) has been creeping up the short charts ahead of its own result, rising 1.1ppt the previous week to 7.4% shorted from 6.3%.

News Corp ((NWS)) has enjoyed a rally since posting a well-received quarterly result in the week in question. Now free from its associated non-ordinary share listings and subsequent arbitrage positions, News Corp has been drifting down the charts and in the week in question saw another 1.0ppt fall to 5.6% shorted from 6.6%.
 

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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