FYI | May 08 2012
By Chris Shaw
Changes in short positions for the week from April 24 were modest, only five companies seeing their total short positions change by more than 1.0 percentage point. Increases slightly outweighed decreases by three to two.
Among the increases was a 1.25 percentage point lift in Cochlear's ((COH)) shorts to 11.17% from 9.92% previously, which came ahead of a conference that led UBS to conclude the company's market share is likely to come under pressure in coming years as competitors introduce new products.
Shorts in Billabong ((BBG)) also rose for the week, climbing to 9.65% from 8.63% the week prior despite no new news from the company. Other discretionary retailers such as Harvey Norman ((HVN)) have struggled and delivered weak sales data in recent weeks, so the top short positions in the market continue to be dominated by stocks in this sector of the market.
As examples, the top 20 short positions include JB Hi-Fi ((JBH)), Myer ((MYR)), Flight Centre ((FLT)), David Jones ((DJS)) and Wotif.com ((WTF)). The media sector is also well represented with both Fairfax ((FXJ)) and Ten Network ((TEN)) in the top 20, while resource stocks are also included in the top 20 via the likes of Lynas Corporation ((LYC)), Iluka ((ILU)) and Paladin ((PDN)).
While not in the top 20, shorts rose in M2 Telecommunications Group ((MTU)) to 2.06% from 1.06% in the week from April 24 as the market adjusted to an entitlement offer from the company to help finance the acquisition of Primus Telecom Holdings.
Among the declines in short positions for the week the largest was in Carsales.com ((CRZ)), where total positions fell to 9.19% from 11.5%. This adjustment in positions came prior to a better than expected update on online advertising revenues, which was enough for Credit Suisse to lift earnings estimates modestly.
Shorts in Whitehaven Coal ((WHC)) declined to 5.61% from 6.87% previously, brokers such as Citi remaining positive on the company given Whitehaven is now a rare breed as an independent coal producer with exposure to seaborne prices, making it the go to stock in the sector in that regard in the broker's view.
Monthly changes in shorts were more significant, both Paladin ((PDN)) and Spark Infrastructure ((SKI)) seeing increases of more than 4.0 percentage points for the month from March 30. For Paladin the changes were likely a reaction to a convertible note issue that helps address some short-term funding concerns, while for Spark the market continues to have mixed views on the proposed move to acquire the Sydney desalination plant.
Among the top 20, Myer, David Jones and Carsales.com (((CRZ)) all saw shorts decline by 1.5-2.1 percentage points in the month, while Wesfarmers partly protected shares ((WESN)) have seen shorts decline from more than 2.5% the month before to 0.1% now.
Beach Energy ((BPT)) saw shorts fall to 3.22% from 5.43% from the month before, this prior to better than expected March quarter production. On the flip side, some in the market viewed Beach's exploration performance during the March quarter as disappointing.
As noted, Ten Network is among the top 20 short positions on the market and RBS Australia sees this as reflective of ongoing TV ad market weakness and poor ratings for the network. The broker recently lowered earnings estimates to reflect these issues, which reinforced a Sell rating on the stock.
Top 20 Largest Short Positions
| ank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 21969268 | 98850643 | 22.21 |
| 2 | ISO | 725044 | 5703165 | 12.71 |
| 3 | COH | 6368476 | 56929432 | 11.17 |
| 4 | MYR | 64755077 | 583384551 | 11.10 |
| 5 | FXJ | 257611720 | 2351955725 | 10.96 |
| 6 | FLT | 10014423 | 100024697 | 10.00 |
| 7 | BBG | 24947895 | 257888239 | 9.65 |
| 8 | LYC | 159919500 | 1714496913 | 9.33 |
| 9 | CRZ | 21511549 | 233684223 | 9.19 |
| 10 | DJS | 46526079 | 524940325 | 8.88 |
| 11 | EGP | 57950189 | 688019737 | 8.41 |
| 12 | PDN | 69893003 | 835645290 | 8.36 |
| 13 | GNS | 61609897 | 848401559 | 7.25 |
| 14 | HVN | 76815948 | 1062316784 | 7.17 |
| 15 | ILU | 26640399 | 418700517 | 6.33 |
| 16 | WTF | 13180059 | 211736244 | 6.22 |
| 17 | TEN | 64330218 | 1045236720 | 6.13 |
| 18 | CSR | 30892376 | 506000315 | 6.09 |
| 19 | TRS | 1543849 | 26071170 | 5.93 |
| 20 | SGT | 9725769 | 165074137 | 5.89 |
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 simple 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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