The Short Report

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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 November 3, 2016

Last week saw the ASX200 continue on its downward trajectory, in line with global markets but to a more pronounced extent, as Donald Trump began a comeback in the polls. The rest, as they say, is history.

Despite the fall in the index over the week, there were more short position increases among stocks 5% or more shorted than there were decreases, as the table below indicates. There were particularly a lot of stocks shifting up into the 6-7% bracket from the 5-6% bracket.

But there were no movements in short position, up or down, of more than one percentage point. There are therefore no Movers & Shakers this week.

We will note a couple of highlights, however.

After entering the 5% plus table at the bottom the week before, troubled hospital operator Healthscope ((HSO)) was among those moving into the 6-7% bracket last week, as was building materials company CSR ((CSR)), despite a better than expected earnings result.

Having slipped back down from the top end of the table over past weeks, G8 Education ((GEM)) has more recently begun to climb again, and last week moved into the 9-10% bracket.

How long will strength in coal and iron ore prices last? Rio Tinto ((RIO)) has cemented its place as the most shorted Top 20 stock in the market, moving up to 7.3% from 6.8% last week, ahead of Top 20 peer Woolworths on 6.4%.

And as to how the wild crash-and-bounce we have just experienced courtesy of The Donald impacts on short positions we will have to wait and see. There will no doubt have been a few heads spinning.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.6
WOR   14.3
WSA   14.0
BAL    11.8
NEC    11.0
MTS    11.0
ACX   10.9
MND   10.3

No changes

9.0-9.9%

AWC, TFC, GEM
 
In: GEM                                 

8.0-8.9%

SYR, JHC, MTR

In: JHC, MTR             Out: GEM, ORI                     

7.0-7.9%

CVO, VOC, MYO, FLT, EHE, ORI, IGO, IFL, DOW, ORE, RIO, BEN

In: ORI, RIO              Out: BKL, SGM

6.0-6.9%

IVC, GOR, BKL, SGM, SGH, AWE, PRY, WOW, NWS, GTY, KAR, HSO, PDN, OSH, CSR

In: BKL, SGM, GTY, KAR, HSO, PDN, OSH, CSR                      Out: CAB

5.0-5.9%

MSB, CAB, SEK, ILU, SPO, DMP

In: CAB, SPO, DMP              Out: GTY, OSH, PDN, KAR, HSO, CSR, IPH, BOQ

Movers and Shakers

See above.
 

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.

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