FYI | Feb 07 2012
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By Chris Shaw
Short positions on the Australian market recorded some significant moves in the week from January 24, the most significant being in Rialto Energy ((RIA)). Shorts in Rialto jumped from less than 0.2% to 6.7% for the week, the increase likely reflecting an equity raising announced by the company for working capital and development expenses.
Another sizable jump was seen in Paladin Energy ((PDN)), where shorts rose by 1.24% to 3.39% following a quarterly production report that was largely in line with market expectations. Asciano ((AIO)) also saw shorts rise for the week by more than 1.0% to a more significant 1.73%. this came as BA Merrill Lynch in particular saw few short-term catalysts for the stock given fewer potential coal contracts in the pipeline and a likely longer time-frame for cost outs to have some impact.
While still among the retail dominated top 10 short positions on the Australian market, Billabong ((BBG)) actually enjoyed a solid decline in shorts for the week from January 24. Total shorts in the stock declined 1.77% and now stand at just more than 9.0%.
Shorts also declined significantly for Australian Infrastructure ((AIX)), total positions down from nearly 2.0% previously to just 0.36% now despite little company specific news to explain such a change. Shorts in Kingsgate ((KCN)) fell 1.43% to 1.19% in total, a move seemingly justified by evidence from the company's quarterly report both the Chatree and Challenger projects have turned the corner in terms of performance.
While quarterly production from Whitehaven ((WHC)) disappointed somewhat, there has been a 1.36% decline in shorts to 1.61%, while Macquarie Atlas Roads ((MQA)) saw a similar fall to a total short position of 1.37%. Brokers remain of the view the outlook for MQA is closely tied to the upcoming Eiffarie refinancing.
The recent quarterly production report of Independence Group ((IGO)) contained no major surprises but short positions in the stock essentially halved to 1.24% in the week from January 24, while shorts in Charter Hall Office ((CQO)) have fallen to almost zero from 1.24% previously.
In terms of monthly changes in shorts, aside from Rialto the biggest increases were in Cochlear ((COH)), Fortescue ((FMG)) and OneSteel ((OST)). The latter two companies are both exposed to the iron ore market, where the shorter-term outlook appears more uncertain given ongoing concerns with respect to the Chinese and global economies.
There were few significant decreases in short positions over the month from December 22, while the top-20 short positions continue to be dominated by companies directly exposed to the retail sector such as JB Hi-FI ((JBH)), Myer ((MYR)) and David Jones ((DJS)) and those linked to discretionary spending in general such as Flight Centre ((FLT)), Carsales.com ((CRZ)) and Wotif.com Holdings ((WTF)).
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 22234609 | 98833643 | 22.51 |
| 2 | ISO | 914555 | 5403165 | 16.93 |
| 3 | MYR | 72246792 | 583384551 | 12.34 |
| 4 | FXJ | 272400260 | 2351955725 | 11.60 |
| 5 | DJS | 55131985 | 524940325 | 10.50 |
| 6 | FLT | 9426155 | 100005264 | 9.41 |
| 7 | BBG | 23147131 | 255102103 | 9.07 |
| 8 | COH | 4666140 | 56902433 | 8.14 |
| 9 | LYC | 122827184 | 1713846913 | 7.15 |
| 10 | RIA | 25130875 | 375006264 | 6.70 |
| 11 | WTF | 14105918 | 211736244 | 6.66 |
| 12 | RIO | 26013257 | 435758720 | 5.97 |
| 13 | CRZ | 13878975 | 233264223 | 5.96 |
| 14 | PPT | 2491736 | 41980678 | 5.94 |
| 15 | HVN | 59978683 | 1062316784 | 5.63 |
| 16 | TRS | 1390659 | 26071170 | 5.33 |
| 17 | GNS | 45116730 | 848401559 | 5.30 |
| 18 | BOQ | 11727918 | 229598329 | 5.08 |
| 19 | OST | 64823991 | 1342393583 | 4.82 |
| 20 | WSA | 8165912 | 179735899 | 4.54 |
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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