FYI | Jan 31 2012
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By Chris Shaw
Retail plays continue to lead the way in terms of largest short positions on the Australian market, with the likes of JB Hi-Fi ((JBH)), Harvey Norman ((HVN)), Myer ((MYR)), David Jones ((DJS)) and Billabong ((BBG)) having an average short interest of more than 10% at present.
Other stocks where short interest remains high include Flight Centre ((FLT)), which is also exposed to discretionary spending, while the Media and Basic Materials sectors in general also have elevated levels of short positions.
In terms of stocks experiencing larger changes in short positions in recent sessions, Whitehaven Coal ((WHC)) experienced the largest increase for the weak from January 16. Short positions in the stock rose 1.99% to 3.19% in total, this prior to a quarterly production report viewed as disappointing by a number of brokers covering the stock.
Output for the period fell well short of expectations, though this was largely explained by some one-off factors such as poor weather and some explosives supply issues. Whitehaven also saw the largest monthly increase in shorts from December 22, a rise of 3.0% from an initial position of just 0.19%.
Goodman Fielder ((GFF)) also saw a jump in shorts for the week to 4.54% from 2.7% previously, though the change in positions was not associated with any recent news from the company. As evidenced of the high level of shorts among media companies, total shorts in Fairfax ((FXJ)) rose by 1.28% for the week to 12.42%, again without there being any recent news.
Shorts in Iluka rose 1.07% to 4.36% during the week from January 16, this despite a solid quarterly production report released earlier in the month. One possible issue for Iluka is the Credit Suisse view the large increases in minerals sands prices experienced over the last several months now appear done, meaning the year ahead will now likely be more about Iluka returning money to shareholders.
The largest decline in shorts for the week from January 16 and only decline of more than 1.0% was in the iShares S&P High Dividend security ((IHD)), where positions declined 1.19% to 2.79% in total.
Among the more interesting changes in monthly short positions were the opposite moves for steel plays OneSteel ((OST)) and BlueScope ((BSL)). While OneSteel's shorts rose 1.59% to 4.69% in the month from December 22, BlueScope went the other way and saw total shorts decline 2.81% to just 0.88%. Of the two OneSteel remains more exposed to movements in iron ore prices.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 22211566 | 98833643 | 22.48 |
| 2 | ISO | 931556 | 5403165 | 17.24 |
| 3 | MYR | 73945643 | 583384551 | 12.65 |
| 4 | FXJ | 292046944 | 2351955725 | 12.42 |
| 5 | BBG | 27763281 | 255102103 | 10.89 |
| 6 | DJS | 54588681 | 524940325 | 10.40 |
| 7 | FLT | 9530577 | 100005264 | 9.52 |
| 8 | COH | 4759822 | 56902433 | 8.30 |
| 9 | LYC | 132314551 | 1713846913 | 7.73 |
| 10 | WTF | 14208700 | 211736244 | 6.71 |
| 11 | TRS | 1655541 | 26071170 | 6.35 |
| 12 | HVN | 64406772 | 1062316784 | 6.07 |
| 13 | PPT | 2497587 | 41980678 | 5.96 |
| 14 | CRZ | 13400087 | 233264223 | 5.76 |
| 15 | RIO | 24923568 | 435758720 | 5.70 |
| 16 | BOQ | 11769782 | 229598329 | 5.11 |
| 17 | SEK | 17010606 | 337101307 | 5.02 |
| 18 | GNS | 42511104 | 848401559 | 4.99 |
| 19 | TEN | 51684919 | 1045236720 | 4.95 |
| 20 | WSA | 8698545 | 179735899 | 4.85 |
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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