The Short Report

This story features SYRAH RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SYR

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 UIKeyInputLeftArrowamounts 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 September 13, 2018

Last week saw the ASX200 continue its slide before bouncing late week, with the trade war a premier influence.

In terms of short position movements, well after last week I’m reluctant to take for granted the veracity of the ASIC data. There’s a lot of red on the table below, and a lot of those movements represent stocks that went up and back down again, or vice versa, over the past two weeks, which led me last week to write off those two data sets as being inaccurate.

There are a couple of moves that could be justified.

Shorts in Syrah Resources ((SYR)) show a fall to 17.2% from 20.3% to leave JB Hi-Fi ((JBH)) as the most shorted stock on the ASX. Syrah raised capital earlier this month, which would explain the move.

On the other side of the ledger, Centuria Industrial REIT ((CIP)) received a takeover proposal from Propertylink ((PLG)) and given the proposal is a mix of cash and scrip, that would justify why Centuria has appeared from nowhere to be 9.8% shorted.

Kidman Resources ((KDR)) has debuted at the bottom of the table and given there are already three lithium miners in the table – two near the top – that one should be no surprise. Charter Hall Retail REIT ((CQR)) used to be an incumbent and is back, ahead of its earnings result this week, while AMP ((AMP)) has popped in at the bottom, and I don’t think we need to question that one.

Beyond that, other moves I would not yet hang my hat on are all of Sandfire Resources ((SFR)), Bendigo & Adelaide Bank ((BEN)) and TechnologyOne ((TNE)) dropping out of the table from the 6% bracket, while NextDC ((NXT)) has jumped into the 6% bracket from below 5% prior.

We might be able to justify a lot of those red moves below as simply being bracket creep, but I remain suspicious. Maybe next week we’ll see this table settle down.

Weekly short positions as a percentage of market cap:

10%+

JBH     19.3
SYR    17.2
ORE    16.8
GXY   16.6
DMP   13.5
ING     12.6
MTS    11.6
GXL    11.4
MYR   11.3
GEM   10.7
HVN   10.5

In: GEM                                             

9.0-9.9

CIP, VOC, IFL, NWS, IGO, NUF, IVC

In: CIP, NUF, IVC                 Out: GEM
                                                                                               
8.0-8.9%

CSR, NEC, NAN, AAC

In: NEC, AAC                        Out: NUF, IVC                     

7.0-7.9%

SUL, BWX, GMA, MLX, BIN, PLS

In: MLX, BIN, PLS               Out: NEC, AAC

6.0-6.9%

MOC, SIG, RSG, KAR, MYO, SEK, NWL, FLT, NXT, MND, GNC, HT1, BGA

In: SIG, NXT, FLT, MND, HT1, BGA                     Out: PLS, MLX, BIN, SFR, TNE, BEN

5.0-5.9%

MSB, CLQ, BAL, KDR, CQR, AMP CAB, BLA, IPD, CCP

In: CLQ, BAL, KDR, CQR, AMP               

Out: FLT, SIG, HT1, MND, BGA, BLA, IPD, CCP

                       
Movers & Shakers

Until I can trust the data, big moves are simply not worth highlighting.

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.

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