FYI | Dec 07 2011
By Chris Shaw
The past week has seen a number of relatively significant changes in short positions on the Australian Stock Exchange, with 10 companies seeing a change of more than 1% in their total short positions relative to the previous week.
Among those where shorts came down were Beach Energy ((BPT)), shorts here falling by 3.39% over the week to 0.60%. The change follows news the Tantanna to Gidgealpa pipeline is back online, something UBS noted would boost oil volumes for Beach.
Paladin ((PDN)), BlueScope Steel ((BSL)) and James Hardie ((JHX)) also experienced falls in short positions of more than 2% over the past week. For Paladin the change may reflect the Federal Government's proposal to end the ban on uranium sales to India, BA Merrill Lynch seeing this as increasing the pressure on those opposed to uranium mining.
BlueScope has announced a capital raising and the market has likely adjusted its views on the stock given the move will strengthen the balance sheet, while the second quarter report from James Hardie last month came in above most market expectations.
David Jones ((DJS)) has also seen shorts come down, the fall of 1.58% bringing total shorts down to 8.42%. The expected Reserve Bank of Australia rate cut announced yesterday is regarded as a potential positive for the retail sector.
Shorts in Aston Resources ((AZT)) also fell by 0.65% to 0.50% in the week from November 23, which may reflect preliminary merger discussions between Aston and Whitehaven Coal ((WHC)). UBS suggests such a merger would deliver some shared synergies.
In terms of increased short positions, the largest gain over the week from November 23 was in Campbell Brothers ((CPB)), this despite a strong interim profit result. Valuation seems a concern for Campbell Brothers, JP Morgan noting the stock is priced for a continuation of buoyant conditions in its core markets.
Shorts in White Energy ((WEC)) also rose by nearly 2% for the week to just over 3.0% in total, the market still adjusting to the announcement earlier in November of an apparent fall-out with joint venture partner and coal supplier PT Bayan.
Western Areas ((WSA) saw a jump in shorts of 1.26% to 6.7% despite the company announcing the start of underground mining at Spotted Quoll. The start of new operations is when mining companies tend to experience the most teething difficulties, so investors may be adopting a cautious approach while expecting operational hiccups.
Unlike the fall in shorts for David Jones, fellow retailer Myer ((MYR)) has seen shorts rise by 1.25% to more than 11.3% in the past week. This continues a trend of increased short positions in the stock over the past month. RBS Australia estimates Myer is currently trading at a discount to David Jones. This might explain the diverging trend between the two.
RBS also notes an increase in shorts in OM Holdings ((OMH)) over the past week, which may indicate traders continuing to position themselves ahead of an expected equity raising to help fund the Sarawak smelting project.
From a longer-term perspective of a few weeks, RBS Australia notes short positions in ASX ((ASX)) have been creeping up over the past month and now stand at around 1.36%. This is up from around 0.8% a month ago, the change possibly explained by the market accounting for softening volumes in both equities trading and new listings, as well as increasing competitive threats that are emerging.
Another major increase over the past month has been in Bank of Queensland ((BOQ)), shorts here rising from 2.88% late in October to more than 4.5% in late November. Poor credit quality in the core Queensland market has been a major market concern, though some stockbrokers feel this threat has been overplayed and so the stock is seen offering value.
Shorts in Flight Centre ((FLT)) have also risen over the past month, increasing by more than 2.0% to a total short interest of nearly 9.0%. This comes despite the most recent update from the company in early November indicating a strong outbound leisure travel market. This is causing earnings to track well above year ago levels.
Another significant increase over the past month has been to short positions in Wotif.com ((WTF)), which have risen by just over 2.5% to more than 6.2%. Over the last few weeks broker commentary on Wotif.com has reflected increasing concern over the group's growth profile as competition continues to increase.
Falls in short positions of 1-2% over the past month have been experienced by Carsales.com ((CRZ)) and Goodman Fielder ((GFF)), the latter coming at the same time as management indicated a strategic review was still being undertaken to find the best way forward for the company.
Top Ten Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | FIX | 209662 | 407763 | 51.42 |
| 2 | BBG | 28297259 | 255102103 | 11.11 |
| 3 | BOQ | 11865233 | 225369547 | 5.26 |
| 4 | ALL | 25035750 | 543181024 | 4.62 |
| 5 | APN | 25522616 | 630211415 | 4.03 |
| 6 | ARU | 10658766 | 367980342 | 2.87 |
| 7 | AUT | 11710494 | 411655343 | 2.82 |
| 8 | ALS | 2494569 | 94193403 | 2.64 |
| 9 | ALK | 6992475 | 269028158 | 2.60 |
| 10 | ANN | 2792718 | 131197201 | 2.12 |
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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