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 24, 2016

Last week saw the ASX200 saw the ASX200 trading largely sideways before it began the push towards 5500.

As the table below suggests, there was quite a bit of movement in shorts last week, particularly at the bottom end of the 5% plus table. A batch of new stocks rose into the 5-6% bracket. Ozforex ((OFX)), Super Retail ((SUL)) and Metals X ((MLX)) have been spotted in the table before but we also welcome Bega Cheese ((BGA)) and plumbing parts manufacturer Reliance Worldwide ((RWC)).

Further up the list, we note child care centre operator G8 Education’s ((GEM)) stint in the 10% plus club has proven short lived while graphite producer Syrah Resources dropped out on a 1.1 percentage point reduction following the company’s AGM.

Otherwise we note hospital operator Healthscope ((HSO)) continues to climb, rising into the 9-10% bracket, while ASX Top 20 stalwart Rio Tinto ((RIO)) enjoyed a slip back into the 6-7% bracket.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.8
WSA   14.5
BAL    12.8
WOR   12.7
ACX   12.5
NEC    12.0
MTS    10.7
TFC     10.4
MND   10.2

Out: GEM, SYR

9.0-9.9%

AWC, SYR, HSO
 
In: SYR, HSO                                   

8.0-8.9%

ORE, VOC, JHC, GEM, NWS, MTR

In: GEM                      Out: HSO                               

7.0-7.9%

DOW, IGO, BEN, FLT, MYO, IFL, IVC, CVO

Out: BKL, RIO

6.0-6.9%

GTY, EHE, BKL, SGH, RIO, NXT, OSH, SEK, ORI, PRY, MSB, WOW, ILU, AWE

In: BKL, RIO, NXT               Out: PDN, GOR

5.0-5.9%

PDN, OFX, GOR, SPO, CAB, SUL, CSR, BGA, MLX, DMP, RWC

In: PDN, GOR, OFX, SUL, BGA, MLX, RWC                   Out: NXT, KAR, SGM, IPH

Movers and Shakers

Shares in Syrah Resources ((SYR)) took a dive last week following the company’s AGM. Nervous shareholders did not like to hear of ramp-up delays for the company’s graphite mine but brokers found the AGM positive, outlining various plans for downstream processing facilities.

Shareholders are likely twitchy given Syrah is one of those “new age” miners. Graphite is hardly new but its use in batteries has propelled the commodity into the electric world most notably occupied by lithium. These commodities have provided for near term booms and busts over 2016, and Syrah now trades around the $3.00 mark – where it began the year – after a mid-year run up to $6.50.

Delays are part and parcel of new mine ramp-ups thus analysts always apply discounts to valuation in the ramp-up phase, winding back the discount as milestones are reached. The four FNArena database brokers covering Syrah found the plans outlined at the AGM positive. Three retain Buy or equivalent ratings.

Morgan Stanley is the contrarian, rating the stock Underweight on concerns over where Syrah is going to find the funds to pay for its capex intentions.

Syrah shorts fell to 9.3% last week from 10.4%.

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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