FYI | Apr 03 2012
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By Chris Shaw
The Australian market saw some significant shifts in short positions in the week from March 20, the moves reflecting both increases and decreases in total positions.
Among the increases for the week, the largest was in Carsales.com ((CRZ)), where total positions increased to 10.29% from 6.43%. The increase came after Carsales.com acquired a stake in Torpedo7 in New Zealand, a business outside the traditional focus on classifieds businesses. The other issue for Carsales.com is emerging competition from the News Limited supported Carsguide joint venture.
The next largest increase in shorts for the week was in Bathurst Resources ((BTU)), where positions increased to 4.15% from 1.51% the week before. The increase came post a profit result that disappointed some in the market and included news of some project delays.
Shorts in Iluka ((ILU)) rose to 6.99% from 4.58% in the week as the market remains concerned about the outlook for the Chinese property market. If the market was to weaken significantly the fear is zircon demand would also fall, potentially impacting on earnings for Iluka.
Among the falls in short positions for the week from March 20 the largest was in Beach Energy ((BPT)), where positions declined to 0.74% from 5.09% previously. The company has been cum a capital raising for some time and this has now come to fruition, as Beach has moved to raise $335 million to fund capex at the Cooper Basin in coming years.
The next largest fall in shorts was in Billabong ((BBG), where positions declined to 8.8% from 11.13% previously. While an approach from TPG was rejected last month private equity continues to see value in the stock around current levels.
The fall in shorts for Billabong was not the only significant change in positions for consumer discretionary stocks, as shorts also declined for the week in The Reject Shop ((TRS)). Short positions here now stand at 5.89% against 7.49% previously, though the fall doesn't change the fact consumer discretionary stocks continue to dominate the top short positions on the Australian market.
Among the top 20 short positions are a number of companies exposed to consumer spending, including JB Hi-Fi ((JBH)) at more than 22%, Myer ((MYR)) at more than 13%, David Jones ((DJS)) at more than 11% and Flight Centre ((FLT)) at more than 9%.
With respect to monthly changes from February 27, Echo Entertainment ((EGP)) posted the highest increase as positions rose to 7.39% from 0.95% previously, while the trend of adjusting positions in Wesfarmers ((WESN)) partly protected shares has also continued, shorts rising over the month to 2.67% from 0.07% previously.
Shorts in Rialto Energy ((RIA)) declined over the month to 0.37% from 4.96%, while OneSteel's ((OST)) shorts fell to 2.53% from 5.84% following an update that highlighted some growth potential in the group's iron ore business. (Since management has indicated it is keen on developing the non-steel divisions the stock's nickname in the market has been changed to "NoneSteel").
For Goodman Fielder ((GFF)) the move by Wilmar to take a stake has caused investors to adjust positions, the result being shorts have fallen over the month to 1.86% from 4.82%, while shorts in both Linc Energy ((LNC)) and Alkane Exploration ((ALK)) also declined over the month by better than two percentage points.
Elsewhere, RBS Australia notes short positions in Macquarie Bank ((MQG)) have risen over the past few weeks and now stand at 2.3%. Last week RBS downgraded Macquarie to a Hold rating on valuation grounds, supported by downside risks to current earnings projections from difficult market conditions.
Today, in what may prove yet another case of perfect timing (at least from FNArena's point of view), RBS analysts released yet another research report suggesting shorts data can be successfully used to predict underperformance for equities on a twelve month horizon. Investors take note?
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 21960959 | 98850643 | 22.22 |
| 2 | MYR | 76041030 | 583384551 | 13.02 |
| 3 | ISO | 719559 | 5703165 | 12.62 |
| 4 | DJS | 60984596 | 524940325 | 11.60 |
| 5 | FXJ | 255585182 | 2351955725 | 10.88 |
| 6 | COH | 5864093 | 56929432 | 10.30 |
| 7 | CRZ | 24099701 | 233674223 | 10.29 |
| 8 | LYC | 166380039 | 1714496913 | 9.72 |
| 9 | FLT | 9426545 | 100017679 | 9.43 |
| 10 | BBG | 22529271 | 255102103 | 8.80 |
| 11 | EGP | 50942948 | 688019737 | 7.39 |
| 12 | HVN | 76344159 | 1062316784 | 7.18 |
| 13 | ILU | 29281544 | 418700517 | 6.99 |
| 14 | WTF | 14481817 | 211736244 | 6.82 |
| 15 | GNS | 55046810 | 848401559 | 6.48 |
| 16 | TRS | 1533455 | 26071170 | 5.89 |
| 17 | RIO | 25145004 | 435758720 | 5.74 |
| 18 | TEN | 59808683 | 1045236720 | 5.71 |
| 19 | PPT | 2291863 | 41980678 | 5.47 |
| 20 | CSR | 26905803 | 506000315 | 5.29 |
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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