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:

Week ending January 26, 2017

Last week saw the ASX200 on the slide from its highs, largely due to analyst calls on banks being overvalued, before rebounding on the renewed Trump rally on Wall Street.

Movements in short positions on the ASX were limited last week, with a couple of notable exceptions.

Super Retail Group has jumped into the table at 13.8% shorted from under 5% shorted the prior week. There has been no new news out of the company since its AGM in October. There is no capital raising on the cards, so I will reserve my judgement on whether this number is real, or a blip in the ASIC data, until next week. Unfortunately such blips are common.

Or does someone fear Amazon?

Aconex’ ((ACX)) stint at the top of the table has proven short-lived. The shares drifted lower last week and short positions fell to 15.4% from 16.6%, putting Myer ((MYR)) back into its familiar number one spot.

Shares in Vocus Communications ((VOC)) nevertheless continue to build, to 11.8% last week from 10.7%.

Shares in graphite prospect Syrah Resources ((SYR)) also drifted lower last week, and shorts fell to 9.6% from 11.0%.

REA Group has jumped into the table at 6.1% shorted from under 5% the week prior, and similarly Paladin Energy has jumped back in at 6.6%.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.0
ACX   15.4
SUL    13.8
WSA   12.1
VOC   11.8
TFC     11.2
NEC    10.5
MTS    10.1

Out: SYR

9.0-9.9%

SYR, WOR
 
In: SYR          

8.0-8.9%

NWS, HSO, FLT, MYX

In: MYX                     Out: NXT, MND                               

7.0-7.9%

DOW, AWC, MND, NXT, BAL, MYO, EHE, ORE, ISD

In: MND, NXT           Out: MYX, IVC

6.0-6.9%

IVC, BEN, SGH, RWC, PDN, PRU, GTY, JHC, MTR, REA, CTD, CSV, BKL, SEK

In: IVC, PDN, REA               Out: ILU, OSH

5.0-5.9%

RIO, BGA, OSH, MSB, WOW, ILU, IFL, OFX, AAD, GEM, CSR, AWE, A2M, KAR, CAB,  SRX, IGO, AAC

In: OSH, ILU, KAR, SRX     Out: ORI, IPH, MLX

Movers and Shakers

Super Retail ((SUL)) held its AGM last October and has not given analysts any cause to update since. At the time, Credit Suisse suggested Bapcor’s ((BAP)) expansion may challenge Super’s supremacy in auto while similarly, the entry of Decathlon and JD Sports into the market will offer competition in the sports space. Another retailer planning to expand in Australia is Amazon.

Amazon likely has all retailers feeling uncomfortable. But as to whether this justifies a jump in shorts in Super Retail to 13.8% from oblivion in a week is questionable. This may just be a data blip.

REA Group ((REA)) sold its European assets late last month in a move that surprised analysts. This may explain why shorts in REA have risen to 6.1% from under 5% the week before.

Paladin Energy ((PDN)) is no stranger to the 5% plus shorted table, often appearing at the low end. With spot uranium prices continuing to wallow, and Paladin’s legacy supply contracts at higher prices now exhausted, the risk is the company will need to raise fresh capital in order to meet its upcoming debt repayment obligations.

Last week Paladin shorts rose to 6.6% from under 5%.
 

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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