FYI | Jan 16 2013
By Andrew Nelson
The first Short Report of 2013 covers the first week of the year from 2-9 January. Given it was the first week of the year, shorting and short covering was fairly subdued. Just one position increased by more than 2 percentage points (ppt) on weekly basis, with only three increases and two decreases recorded on a monthly basis.
Paladin's ((PDN)) short position increased 2.08ppt from 9.25% to 11.33%. Just before Christmas UBS upgraded its recommendation Buy from Neutral on the belief the recent landslide victory of Japan’s Liberal Democratic Party will help put a rocket, or at least a cracker, under the uranium price. The stock is somewhat positively regarded in the FNArena Database, with two Buys, three Holds and a Sell and on current numbers; there is 27% upside to the consensus price target.
While not moving over 2ppt, Fairfax ((FXJ)) did see a notable 1.35ppt increase in its short position, rising from 13.52% to 14.87%. Arrium ((ARI)) also posted a notable increase of 1.02ppt, moving from 0.38% to 1.4%. There were no notable moves on the downside, with a 0.74ppt decline in Cromwell Property’s ((CMW)) short position sitting at the top of the weekly decliners list.
Things were a bit busier on a monthly basis, with moves from late last year still washing through the ASIC data. Fairfax leads the monthly increases, its short position moving 3.06ppt higher from 11.81% to the 14.87% we already mentioned. It’s been a quiet few weeks for Fairfax, but Deutsche Bank did note last week that John Singleton’s purchase of about a 0.15% stake in the company sets the stage for some intrigue with Gina Rinehart, with the broker expecting the pair to work together to grab a bigger voice at the Board table. The stock sits in negative sentiment territory in the database, with two Buys, three Holds, three Sells and marginal upside to the consensus price target.
Unsurprisingly, Paladin sits next on the list of monthly increases, its short position rising 2.58ppt on a monthly basis from 8.75%. Mesoblast booked the last monthly move of over 2ppt, with its short position rising 2.44ppt from 2.94% to 5.38%. While not falling into the period in question, it is worth noting that Credit Suisse upgraded its call to Outperform from Neutral a couple of days ago, noting the company had reported a positive outcome for its Phase-2 lumbar spinal fusion trial. CS analysts seemed excited by the news and noted management can now meet with the US FDA to discuss Phase-3 trial.
Ten Network Holding ((TEN)) saw the biggest decrease to its short position on a monthly measure, down 2.34ppt from 8.03% to 5.69%. Sentiment for the stock remains poor, with just one Buy versus three Holds and four Sells, with the stock also trading at a 21% premium to the consensus price target.
Last on our list for discussion is Lynas Corp ((LYC)), whose short position has pulled back 2.07ppt from 8.58% to 6.51%. Last week, Deutsche Bank upgraded its recommendation to Hold from Sell as part of a sector review. While noting the valuation is looking fairly attractive, the broker remains concerned about rare earth prices and the prospects of more Malaysian issues. The shares currently trade at a near 60% discount to the consensus target, while the database shows two Buys and three Holds.
And even though it’s been a few weeks since we’ve looked at the Top 20 Largest Short Positions, there’s not much in the way of change. Just a few position swaps. A few of the stocks at the bottom of the list, like Ten and Linc Energy ((LNC)) did drop off to be replaced by Bradken ((BKN)) and Acrux ((ACR)). Again, while not germane to the shift in short position ranking, Credit Suisse did downgrade its recommendation on Bradken to Neutral from Outperform just yesterday, noting much of the company’s significant upside is already in the price. Otherwise, the stock remains the broker's favourite among services providers to miners and energy producers. With four Buys and three Holds in the database, the stock remains positively regarded.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 18950127 | 98850643 | 19.17 |
| 2 | ILU | 66516897 | 418700517 | 15.89 |
| 3 | FXJ | 344302742 | 2351955725 | 14.64 |
| 4 | MYR | 82542908 | 583384551 | 14.15 |
| 5 | FLT | 12621657 | 100165616 | 12.60 |
| 6 | HVN | 121296923 | 1062316784 | 11.42 |
| 7 | PDN | 90992792 | 836825651 | 10.87 |
| 8 | MTS | 93848828 | 880704786 | 10.66 |
| 9 | DJS | 55695510 | 531788775 | 10.47 |
| 10 | TRS | 2569956 | 26092220 | 9.85 |
| 11 | COH | 4991802 | 57026689 | 8.75 |
| 12 | CSR | 41338406 | 506000315 | 8.17 |
| 13 | SLR | 18081370 | 228940486 | 7.90 |
| 14 | MND | 6868662 | 90663543 | 7.58 |
| 15 | ACR | 11779236 | 166496711 | 7.07 |
| 16 | WTF | 14933842 | 211736244 | 7.05 |
| 17 | WSA | 13460568 | 192893794 | 6.98 |
| 18 | AWC | 170034783 | 2440196187 | 6.97 |
| 19 | LYC | 131131588 | 1960801292 | 6.69 |
| 20 | BKN | 11227204 | 169240662 | 6.63 |
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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