FYI | Mar 20 2012
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By Chris Shaw
While the week from March 6 was relatively quiet in terms of changes in short positions among ASX-listed stocks, some of the changes were of interest given the companies involved.
Among the reductions in short interest of more than 1.0 percentage points were three retail plays – Myer ((MYR)), Billabong ((BBG)) and David Jones ((DJS)). All saw shorts fall to levels now around the 10% mark from more than 11% previously. Despite the falls in shorts for the three companies mentioned, top short positions in the Australian share market continue to be dominated by consumer discretionary plays. JB Hi-Fi ((JBH)), Harvey Norman ((HVN)), Flight Centre ((FLT)) and The Reject Shop ((TRS)) are still among the top-20 shorts in the market.
Among other declines in short positions for the week from March 6 was Beach Energy ((BPT)), where positions fell to 5.29% from 7.21% the week before. This was prior to the company announcing production at a project in Egypt had commenced.
Shorts in Tatts ((TTS)) fell to 1.4% from 2.69% previously, as post a solid interim result Deutsche Bank suggested the second half has started well for the company. Deutsche sees scope for some upside from the recent Tote Tasmania and Lotteries acquisitions.
QBE Insurance ((QBE)) is raising some funds to help with the recent acquisitions of Hang Seng Bank and HSBC Argentina, moves that were generally well received. Shorts have fallen to 3.25% from 4.44% previously as the market adjusts to the transactions and capital raising, though some brokers continue to have some concerns with respect to QBE's capital position. Others, however, are willing to take a more optimistic stance.
On the side of increases in shorts the most significant in the week from March 6 was registered for Singtel ((SGT)), where positions rose to 7.06% from 5.37% previously. The increases follow some broker visits and come post the acquisition of Amobee, a mobile advertising business.
The other largest increase was in Wesfarmers partly protected shares ((WESN)), where shorts rose to 2.61% from 1.56% previously. Shorts in Wesfarmers ordinary shares were largely unchanged.
In terms of monthly changes from February 13 the most significant increases were in Echo Entertainment ((EGP)) and Beach. Echo's shorts increased to more than 7.4% from less than 0.9% previously, as the market continues to question whether Crown ((CWN)) will move on the group from its current stake of around 10%. Beach's shorts have risen over the month to nearly 5.3% from 1.79% previously.
Among stocks where shorts have fallen over the past month were OneSteel ((OST)), where positions have declined to 2.9% from just over 6.0% the month before. Brokers remain positive on the company from a valuation perspective, supported by some increases to forecasts post last month's interim profit result.
Shorts in Seek ((SEK)) fell in the month to just more than 4.1% from just over 6.0% previously, this as brokers have in general lifted forecasts and price targets post the recent interim profit result. Goodman Fielder ((GFF)) also saw short positions for the month fall solidly, total positions now standing at 2.7% from 4.49% previously. The decline is likely related to Singapore agribusiness group Wilmar taking a stake of just over 10% in the company, potentially implying Goodman Fielder is in play.
Elsewhere, an increase in shorts in CSL ((CSL)) of nearly 1.4% in recent weeks to around 1.45% is significant to RBS Australia. The broker is cautious on the stock given moderating sales and growing competition and as CSL appears to be transitioning to a more research-driven organisation. This shift is likely to take time and involve a number of development challenges and regulatory risks.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 20692605 | 98850643 | 20.94 |
| 2 | FXJ | 262136108 | 2351955725 | 11.15 |
| 3 | ISO | 606809 | 5703165 | 10.64 |
| 4 | BBG | 26397994 | 255102103 | 10.29 |
| 5 | DJS | 52963906 | 524940325 | 10.07 |
| 6 | MYR | 58546325 | 583384551 | 10.02 |
| 7 | FLT | 9470628 | 100017679 | 9.43 |
| 8 | COH | 5228051 | 56929432 | 9.16 |
| 9 | LYC | 151906891 | 1714396913 | 8.89 |
| 10 | EGP | 51244627 | 688019737 | 7.44 |
| 11 | GNS | 62413343 | 848401559 | 7.34 |
| 12 | SGT | 12516986 | 176974336 | 7.06 |
| 13 | WTF | 14766631 | 211736244 | 6.96 |
| 14 | HVN | 72641318 | 1062316784 | 6.84 |
| 15 | CRZ | 14934741 | 233674223 | 6.36 |
| 16 | TEN | 63516058 | 1045236720 | 6.07 |
| 17 | TRS | 1577120 | 26071170 | 6.04 |
| 18 | PPT | 2428858 | 41980678 | 5.77 |
| 19 | ILU | 23052563 | 418700517 | 5.48 |
| 20 | BPT | 58854487 | 1113497051 | 5.29 |
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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