The Short Report

This story features WORLEY LIMITED, and other companies. For more info SHARE ANALYSIS: WOR

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 10, 2016

A historical chart of the Dow will forever show that when Donald Trump won the election, the response was a 250 point rally the next day. What it will never show is that the Dow futures were at one point down over 800 points that night.

A historical chart of the ASX200 will forever show a 100 drop the day Trump won the election. And then a 170 point rally the day after. The table below indicates there was not a great deal of short position ups and downs over such a dramatic period, but given it covers the whole week, it’s unclear just what carnage or otherwise may have been wreaked day to day. We can at least assume a bit of whiplash.

While there’s not a great deal of movement on the table below, there are a couple of standouts.

Energy sector service provider WorleyParsons ((WOR)) has been enjoying a choppy share price comeback of late on the stronger oil price, and last week saw its shorts drop to 13.5% from 14.3% the week before. Worley thus ceded the position of second most shorted stock on the market to Western Areas, the shorts of which rose to 15.1% from 14.0%.

Healthscope has had a horror month since issuing a profit warning and having plunged in October, the stock neither fell further nor rallied back on the Trump turnaround. Healthscope shorts rose to 7.8% last week from 6.2%.

Last week saw News Corp announce its first quarterly loss since it demerged 21^st Century Fox, disappointing analysts. News shorts rose to 8.1% from 6.4%.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.5
WSA   15.1
WOR   13.5
BAL    12.5
ACX   11.8
NEC    11.2
MTS    10.8
MND   10.2

No changes

9.0-9.9%

AWC, TFC, GEM
 
No changes                            

8.0-8.9%

MTR, VOC, JHC, SYR, NWS

In: VOC, NWS                                              

7.0-7.9%

HSO, MYO, IGO, CVO, BEN, RIO, IFL, ORE, FLT, EHE, IVC, DOW

In: HSO, IVC             Out: VOC, ORI

6.0-6.9%

ORI, BKL, SGH, GTY, WOW, AWE, PRY, SGM, OSH, MSB, GOR, SEK, PDN

In: ORI, MSB, SEK               Out: NWS, HSO, IVC, KAR, CSR

5.0-5.9%

CAB, ILU, NXT, SPO, CSR, DMP

In: CSR, NXT             Out: MSB, SEK

Movers and Shakers

If there is one base metal showing no lack of global supply capacity at present it’s nickel. The nickel price has thus, for the most part, been weak over 2016. But there have been some sharp bouts of volatility in between related to supply constraints.

First Indonesia banned nickel ore exports in order to promote investment in value-adding nickel concentrate smelters in the country, sending the nickel price flying. It flew back again when the government got the investment response it wanted and eased off on its ban.

Then the new president of the Philippines warned it would shut down inefficient nickel mines for environmental reasons. Nickel shot up again. But while some mines have indeed been closed, as to how many will ultimately be closed is unclear. Meanwhile, China is churning out nickel pig iron with gay abandon.

Western Areas ((WSA)) is a pure-play nickel miner that basically lives and dies on the nickel price. Amidst nickel price volatility and uncertainty, shorts on the stock have steadily been growing. Last week saw those shorts rise by 1.1 percentage points to 15.1% to take Western Areas in to the position of second most shorted stock on the ASX.

After issuing a profit warning in October, hospital operator Healthscope ((HSO)) saw its share price tank. It has basically remained tanked ever since. Aside from industry issues currently troubling the company at present, there is an ever present dark cloud of possible regulatory changes hanging over the stock.

Last week saw Healthscope shorts rise 1.6ppt to 7.8%.

News Corp’s ((NWS)) media business can largely be divided into three segments: old world (newspapers and books); newer world (cable television) and new world (online). Last week News posted its first ever quarterly loss since demerging its movie business.

The main drag is old world publishing, in which advertising revenue continues to decline and costs remain elevated. Failing to offset was News’ investments in online classifieds, and particularly in REA Group ((REA)), which are currently the primary driver of earnings. In between is its stake in Fox Sports, which is beholden to the cost of sporting rights.

It’s a balancing act. With cost reductions seen by analysts as News’ only potential near term catalyst, shorts in the stock rose by 1.7ppt last week to 8.1%.
 

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