The Short Report

This story features FLIGHT CENTRE TRAVEL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: FLT

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As was discussed in last week's Short Report, the stocks with the greatest percentage of short positions per capital according to ASIC data continue to be those with an association to retail – the chain stores, Fairfax ((FXJ)) and Flight Centre ((FLT)).

There was no change in the top eight shorts from last week's report to today (week ending January 10), with the numbers made up by the iShares Small Ords ETF in second position (a classic switch play) and hearing implant leader Cochlear ((COH)) which remains under a product recall cloud. The only difference is that David Jones ((DJS)) and Billabong ((BBG)) have swapped positions.

Last week Rio Tinto ((RIO)) made a surprise entry at number nine but has dropped out again this week following a 0.8 percentage point reduction in short positions. Hence Lynas ((LYC)), which is waiting desperately for the go ahead from the Malaysian government, and Wotif ((WTF)), which is effectively another domestic consumer stock, shuffle back up to complete the top ten.

In terms of the larger change in positions generally over the week, Cochlear saw a 0.9 percentage point increase on top of its already hefty short position while OneSteel's ((OST)) shorts increased by 0.8ppt to total 3.35%. With Australian steel production almost a memory, OneSteel is beholden to movements in iron ore prices on its production side.

The prize for short position reductions this week went to QBE Insurance ((QBE)) with a 1.12ppt fall to 2.31%, reversing last week's gains. Rio's 0.8ppt drop was the second biggest reduction while Macquarie Atlas Roads ((MQA)) also saw a 0.8ppt fall to 2.80%.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	22168371	98833643	22.42
2	ISO	931556	5403165	17.24
3	MYR	74679797	583384551	12.78
4	FXJ	284725705	2351955725	12.12
5	DJS	55769888	524940325	10.61
6	BBG	26480073	255102103	10.36
7	FLT	9734208	100005264	9.72
8	COH	4863202	56902433	8.49
9	LYC	122019435	1713846913	7.14
10	WTF	14452504	211736244	6.81
11	TRS	1664997	26071170	6.39
12	RIO	27474838	435758720	6.26
13	HVN	63738760	1062316784	6.00
14	PPT	2480634	41980678	5.92
15	CRZ	13139677	233264223	5.65
16	TEN	53412022	1045236720	5.14
17	GNS	42453782	848401559	4.98
18	BOQ	11436716	229598329	4.96
19	WSA	8927072	179735899	4.95
20	SEK	16635199	337101307	4.91

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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