FYI | Jul 10 2012
By Chris Shaw
For the week from June 26 reductions in short positions far outweighed increases, with only three cases of short positions rising by more than one percentage points against 10 falls in positions of more than 1.5 percentage points.
Among the increases was St Barbara ((SBM)), where positions increased to 3.94% from 1.94% as the company moved to acquire Allied Gold ((ALD)). While the merger will increase shares on issue the deal would also add to the producing assets of the group, so alleviating some growth concerns in the view of brokers.
Shorts in the iShares High Dividend derivative also rose to 2.69% from 1.36% previously, while the iShares Small Ordinaries derivative saw shorts increases to 8.59% from 7.35%.
On the other side of the ledger, Gunns ((GNS)) experienced the largest decline in shorts for the week from June 26 as total positions fell to 3.6% from 8.89% previously. The change came as the company updated the market on its ongoing asset sale program and a proposed capital raising. Gunns now drops out of the top 20 short positions on the Australian market.
Others in the top 20 list where short positions fell by at least 1.5 percentage points include David Jones ((DJS)), Myer ((MYR)) and The Reject Shop ((TRS)). Myer shorts declined to 8.73% from 11.67%, for David Jones positions fell to 7.71% from 10.38% and for The Reject Shop shorts now stand at 6.03% against 8.18% previously.
While the changes for David Jones may have reflected the unsolicited approach from a mystery UK company, for The Reject Shop at least there was evidence of increased investor interest following the recent emergence of a new substantial shareholder on the register.
The declines in positions weren't enough to drop any of the discretionary retailers out of the top 20 list, this category continuing to dominate the short positions on the Australian market with JB Hi-Fi ((JBH)) leading the way with total shorts of 20.73%. This is also down modestly from the previous week and continues the trend of recent weeks of a decline in total short positions.
One stock to drop out of the top 20 was Echo Entertainment ((EGP)), as shorts fell in the week from June 26 to 4.18% from 6.09%. Investors in Echo continue to adjust short positions following the group's recent capital raising.
With DuluxGroup ((DLX)) extending its takeover offer for Alesco ((ALS)) by a few weeks short positions in the target have declined to 0.13% from 2.03% previously, while shorts in Primary Health Care ((PRY)) have also declined to 0.87% from 2.74% following some recent increases to earnings estimates for the company in the market.
Shorts in Mortgage Choice ((MOC)) have fallen to 0.01% from 1.86% as there are signs the company is winning some market share in the mortgage broker space, while Cochlear ((COH)) also saw shorts decline to 9.26% from 11.08% as there continues to be signs the failure rate for the CI512 implants is trending down.
Fairfax ((FXJ)) shorts fell to 12.95% from 14.62% in the week from June 26 as the company continues to deal with Gina Reinhart's recent interest in the company and as the market continues to assess recently announced restructuring initiatives.
Fairfax remains in the top 20 short positions list along with the likes of Billabong ((BBG)), Harvey Norman ((HVN)), Carsales.com ((CRZ)), Flight Centre ((FLT)), Lynas Corporation ((LYC)) and Paladin Energy ((PDN)). Stocks in the top 20 also dominated the list of top monthly changes in shorts for the period from June 1.
While not in the top 20 short positions, RBS Australia notes shorts in Boral ((BLD)) have continued to climb since the recent earnings downgrade from management. Total shorts have risen by 90 percentage points over the past month to 6.1%, the broker attributing this to increased investor concern about the potential for a capital raising given deteriorating debt metrics for the group.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 20488590 | 98850643 | 20.73 |
| 2 | FXJ | 304549013 | 2351955725 | 12.95 |
| 3 | FLT | 12596992 | 100039833 | 12.59 |
| 4 | CRZ | 27211082 | 233689223 | 11.64 |
| 5 | LYC | 176845148 | 1715029131 | 10.31 |
| 6 | COH | 5272228 | 56929432 | 9.26 |
| 7 | PDN | 74760296 | 835645290 | 8.95 |
| 8 | MYR | 50930646 | 583384551 | 8.73 |
| 9 | HVN | 91823401 | 1062316784 | 8.64 |
| 10 | ILU | 36070349 | 418700517 | 8.61 |
| 11 | ISO | 490032 | 5703165 | 8.59 |
| 12 | BBG | 34903322 | 410969573 | 8.49 |
| 13 | DJS | 40767847 | 528655600 | 7.71 |
| 14 | LNC | 37992740 | 504487631 | 7.53 |
| 15 | WTF | 14999615 | 211736244 | 7.08 |
| 16 | CSR | 31311564 | 506000315 | 6.19 |
| 17 | TRS | 1573254 | 26071170 | 6.03 |
| 18 | MTS | 46300352 | 771345864 | 6.00 |
| 19 | MSB | 16882426 | 284478361 | 5.93 |
| 20 | GWA | 17313253 | 302005514 | 5.73 |
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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