The Short Report

This story features SYRAH RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SYR

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:

Week ending October 20, 2016

Last week saw the ASX200 briefly trading under 5400 before rebounding somewhat, although this week the index has definitively broken down through 5400 support.

There was not a lot of short position movement last week, mostly just bracket creep, as the table below indicates. By next week we may see more action as the AGM season steps up a gear. There were nevertheless two exceptions last week.

Having appeared in the bottom of the 5% plus table in last week’s report, hotel and resort REIT Mantra Group has added another 2.3 percentage points to be 7.2% shorted. And having floated around the bottom end of the table for some time now, lithium producer Orocobre saw its shorts jump 2.2ppt to 7.1%.

And also on the battery theme, we note graphite hopeful Syrah Resources ((SYR)) had been another stock floating around at the bottom of the table for a while but in recent weeks it has been gradually climbing higher, and has this week has crept into the 8-9% bracket.

Syrah shares shares suffered a drop earlier in the month when the managing director announced he was stepping down, but the stock has been inching higher ever since.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.4
WOR   14.6
WSA   13.6
BAL    11.9
MTS    11.2
MND   10.5

No changes

9.0-9.9%

AWC, TFC
 
No changes                            

8.0-8.9%

CVO, NEC, ORI, SYR, IGO

In: SYR, IGO             Out: FLT, BKL                      

7.0-7.9%

FLT, ACX, SGM, BKL, GEM, DOW, IFL, JHC, MYO, BEN, EHE, MTR, ORE, CAB

In: FLT, BKL, MTR, ORE                 Out: IGO, SYR

6.0-6.9%

IVC, WOW, SGH, NWS, VOC, AWE, PRY, RIO

In: VOC                      Out: OSH

5.0-5.9%

OSH, MSB, SEK, GOR, GTY, PDN, IPH, KAR, ILU, CSR

In: OSH, ILU, CSR                Out: MTR, VOC, CTD

Movers and Shakers

There has been no new news forthcoming from Mantra Group ((MTR)) since its earnings result in August, or at least nothing to prompt analysts into updating forecasts. The stock has nevertheless enjoyed a steady, if not choppy, share price rise ever since, in defiance of a general exit from yield stocks.

REITs have come under pressure lately as expectations for a Fed rate rise, and no RBA rate cut, have underpinned a rotation out of the longstanding yield trade and into the long-avoided cyclical trade. Last week Mantra shorts rose to 7.2% from 5.9%.

Orocobre ((ORE)) shares were trading at $1.50 last December and $5.00 in June. It’s all about lithium, and an expected surge in demand for batteries to power homes and cars and so forth. It’s not the first time we’ve seen a sudden explosion in the price of the new metal du jour and subsequent surge in any company associated with it, aspirational or otherwise.

Indeed, aside from such explosions in rare earth metals not so long ago and uranium a while back, even lithium had a prior spike. But it was a bit premature – Tesla hadn’t produced its first car yet.

Once again the exuberance over lithium has faded, given a typical supply-side response. Suddenly everyone wants to get rich from mining lithium. Analysts generally agree Orocobre is the best placed among Australia’s lithium miners and aspiring miners, but do warn global lithium supply could become excessive.

Orocobre shorts last week rose to 7.1% from 5.9%.
 

ASX20 Short Positions (%)

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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms