The Short Report

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending May 25, 2017

Last week saw the ASX200 attempt to recover the 5800 mark following the prior Great Big Bank Tax sell-off, fail, and roll over to the downside once more. Judging by the sea of green in the table below, weakness prompted the shorters to take some profits.

In the 10% plus shorted club, just about every stock saw some extent of short reduction, the most notable being Bellamy’s Australia ((BAL)) with a drop to 10.5% from 12.2% the week before. Bucking the trend was Myer ((MYR)), having been mired in the demise of fashion label Topshop. Myer shorts rose to 14.8% from 13.3%.

Another sharp mover at the top end was Nine Entertainment ((NEC)), which saw shorts fall to 8.9% from 10.0%, while further down, Oxforex ((OFX)) dropped to 6.9% from 8.3%.

Otherwise the week simply featured a lot of bracket creeping to the downside, and quite a number of stocks falling off the bottom of the 5% plus shorted table. CSG ((CSV)) disappeared from 6.3% shorted.

I noted in last week’s Report that bank selling had appeared to lift Westpac ((WBC)) shorts to 1.4% from 0.8%, while I queried the sharp jump in Westfield ((WFD)) shorts to 2.1% from 1.1%, suggesting this one might just be a data blip.

I had it round the wrong way. Westpac’s shorts are back to 0.9% and Westfield shorts have risen to 2.6%.

Weekly short positions as a percentage of market cap:

10%+

ORE    20.6
SYR    16.7
VOC   16.6
WSA   16.3
MYR   14.8
IGO     13.4
ACX   12.7
MYX   12.5
FLT     11.0
DMP   10.8
ISD     10.7
BAL    10.5
MTS    10.1

Out: AAD, NEC        

9.0-9.9%

JBH, AAD, HVN, RFG
 
In: AAD                                                                                 

8.0-8.9%

NEC, SHV, SAR, QIN, PRU

In: NEC, PRU                        Out: JHC, OFX

7.0-7.9%

A2M, JHC, BKL, MND, NWS, CTD, GTY, EHE, RWC

In: JHC                       Out: PRU, IPD

6.0-6.9%

OFX, IPD, BDR, TPM, MYO, IFL, BEN, SEK, RIO, SGH, HSO, BGA, MTR

In: OFX, IPD              Out: NXT, CSV

5.0-5.9%

AWC, KAR, BAP, NXT, OSH, PLS, SUL, AAC

In: NXT, BAP                        Out: GXL, VRT, WOR, MSB, CCP

Movers and Shakers

The bulk of the attention around the pending Australian invasion of Amazon has centred around specific retailers such as JB Hi-Fi ((JBH)) and Harvey Norman ((HVN)), which we note are both sitting just under 10% shorted. But sector analysts have now started warning that the biggest risk from Amazon lies with the department stores. For what has Amazon grown into, if not a globally dominant department store, online?

It is thus of no surprise Australia’s last remaining listed department store chain, Myer, is again attracting further short interest. Not that Myer is any stranger to the 10% plus club, having resided there for years now as a relic of the past. But it was of no great help when last week saw the store’s anchor youth apparel label, Topshop, go into voluntary administration. Myer shorts have risen to 14.8% from 13.3%.

While analysts believe Topshop will be realigned and saved from receivership, it’s just another warning sign on the road to obsolescence.

Speaking of obsolescence, Nine Entertainment has enjoyed a strong run since late last year, largely on the assumption the government was finally going to address the licence fee system for FTA TV that despite the invasion of cable and streaming, hadn’t been reassessed in principle since Graham Kennedy hosted IMT. And also because Ten Network ((TEN)) is sinking slowly into the sunset.

And so it was, the broadcast licence was abandoned in the budget and replaced with a spectrum fee. Great news, but for the restriction on gambling advertising which came with it. Gambling ads are to FTA networks these days what pokies are to pubs.

The suggestion that Nine might by the rest of Stan from a privatised Fairfax Media also failed to excite investors last week. A fall in shorts to 8.9% from 10.0% suggests profit-taking.

Money mover Ozforex ((OFX)) revised earnings guidance down, again, ahead of last week’s FY17 result release. The shorters were probably expecting, given guidance had been downgraded three times in eighteen months, that the result would still be a miss. It wasn’t, and Ozforex shares enjoyed a pop.

Given shorts in the stock fell to 6.9% from 8.3%, one might assume short-covering had a lot to do with it.

 
ASX20 Short Positions (%)

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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms