The Short Report

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By Chris Shaw

Already one of the top 20 short positions on the Australian market, Myer ((MYR)) saw total shorts increase further for the week from April 10. Shorts rose to 12.92% from 11.57% previously, the market still dealing with weak conditions for the consumer discretionary sector.

Also in the top 20 and exposed to discretionary spending are the likes of JB Hi-Fi ((JBH)), David Jones ((DJS)), Billabong ((BBG)), Flight Centre ((FLT)) and Harvey Norman ((HVN)), with Myer now in the number two position. JB Hi-Fi remains the clear number one, shorts in the stock increasing for the week to 23.22% from 22.3% the week prior.

Others with significant short positions include Cochlear ((COH)), Lynas Corporation ((LYC)), Iluka ((ILU)) and Gunns ((GNS)).

Paladin ((PDN)) was the other stock where shorts rose by almost 1.0 percentage points, rising to 5.7% for the week from April 10 from 4.73% previously. The increase came leading into a quarterly production report that fell short of market expectations, while Paladin has at least addressed refinancing concerns with the announcement yesterday of a convertible bond issue.

The most significant change in shorts for the week from April 10 was in Beach Energy ((BPT)), where total positions fell to 2.04% from 6.11% previously as the market continues to adjust to Beach's capital raising last month.

Shorts in Charter Hall Office ((CQO)) also declined, falling to 0.03% from 1.46% previously as the company confirmed some consortium agreements and confirmed distribution guidance. Lynas was one of the few in the top 20 to enjoy a fall in short positions in the week from April 10, with a decline to 9.23% from 9.9% as at least one broker adjusted its model to account for delays to the LAMP project in Malaysia.

With respect to monthly changes from March 16 the largest increase was in Carsales.com ((CRZ)), positions rising to 11.47% from 6.32% previously. The gain has been a relatively constant one since the company announced it was taking a stake in New Zealand online retailer Torpedo7.

Shorts in Bathurst Resources ((BTU) rose in the month to 4.44% from 0.93% following a disappointing quarterly report and the fact there will be some delays to the Escarpment appeals process, while Paladin's shorts have increased over the month by a total of 2.20 percentage points.

Falls in monthly short positions were less pronounced, the largest a decline to 1.78% from 3.62% for Alkane ((ALK)), which came as the company acquired royalties over the Tomingly gold project.

RBS Australia notes short positions in GWA ((GWA)) have risen over the past week by more than one percentage point to 4.6%, the broker seeing this a reflection of still tough conditions in the housing market. With cuts to housing cycle forecasts and the expectation of a flatter cycle bottom a recovery for GWA and similar companies is likely to be more protracted than RBS had previously thought.

Others in the market pay be taking a similar view, as RBS notes short positions rose over the past week in the likes of CSR ((CSR)), BlueScope Steel ((BSL)) and GUD Holdings, all of which have some exposure to the housing market.

 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	22957064	98850643	23.22
2	MYR	75484581	583384551	12.92
3	ISO	717405	5703165	12.58
4	CRZ	26824439	233684223	11.47
5	COH	6255238	56929432	11.00
6	FXJ	256447608	2351955725	10.91
7	DJS	55037981	524940325	10.47
8	FLT	9952226	100024697	9.92
9	BBG	25035585	255102103	9.80
10	LYC	158271121	1714496913	9.23
11	EGP	55781335	688019737	8.10
12	HVN	78167927	1062316784	7.33
13	GNS	61500887	848401559	7.24
14	WTF	14124172	211736244	6.65
15	ILU	26552271	418700517	6.33
16	TRS	1573891	26071170	6.06
17	TEN	62123783	1045236720	5.93
18	CSR	29830093	506000315	5.89
19	SGT	9466583	165074137	5.74
20	PDN	47575816	835645290	5.70

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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