FYI | Apr 10 2012
By Chris Shaw
The Australian market saw more significant increases than decreases in short positions for the week from March 23, though in total only five companies experienced changes in total shorts of more than two percentage points.
Among the increases the largest was in Beach Energy ((BPT)), where total shorts rose from 0.64% to 5.43% during the week. The change comes after Beach announced it would raise $345 million through a rights and convertible notes issue, the money flagged for Cooper Basin capex in coming years and to top up general working capital.
Shorts in Bathurst Resources ((BTU)) rose to 4.0% from 1.23% the week prior, this coming after what was viewed as something of a sub par result from the company. As Credit Suisse noted, earnings are likely to be lower in coming periods than had been expected given delays to the appeals process relating to the Escarpment project. Unrealised forex losses and revaluations also impacted on the earnings result.
Independence Group ((IGO)) experienced an increase in shorts to 3.2% from 0.96% as the company moves closer to the first gold pour from the Tropicana project, while shorts in Singtel ((SGT)) increased to 5.4% from 3.38% at the same time as Macquarie revised its estimates to account for changes to forex assumptions and contributions from the Singapore and Indian businesses.
In terms of reductions in short positions, the largest during the week from March 23 was in Billabong ((BBG)), where total shorts fell to 8.67% from 11.3% previously. The market in Billabong retains some uncertainty stemming from tough trading conditions, balance sheet concerns and private equity interest in the company.
While Billabong's shorts fell the consumer discretionary sector continues to dominate the list of largest short positions on the Australian market. JB Hi-Fi ((JBH)) continues to dominate with total shorts of 21.76%, while others in the sector among the top 20 short positions include Myer ((MYR)) and David Jones ((DJS)) at more than 10% respectively and Harvey Norman ((HVN)) and The Reject Shop ((TRS)). Shorts in Myer have risen in the month from February 29 to 13.2% from around 10% the month prior.
Others associated with consumer discretionary spending with large short positions include Flight Centre ((FLT)), Carsales.com ((CRZ)), Wotif.com ((WTF)), while others with large short positions include Cochlear ((COH)), Lynas ((LYC)) and Perpetual ((PPT)).
As with weekly changes, the more pronounced among the monthly changes were increases, with seven companies seeing increases of more than two percentage points. In contrast, only one company, Alkane ((ALK)), saw shorts fall more than two percentage points to 2.0% for the month from February 29.
The largest monthly increase was in Echo Entertainment ((EGP)), where shorts rose to 7.4% from 0.77% previously as the share price continues to position for potential corporate activity involving the company.
Shorts in Carsales.com increased to 10.7% from 8.9% in the week from March 23 and have essentially doubled over the month to 10.7% as the market digests the move away from its traditional classifieds business via the taking of a stake on Torpedo7 in New Zealand, while shorts in Elders ((ELD)) increased to 4.45% from 0.69% despite no major news from the company in recent weeks.
Past research conducted by analysts at RBS suggests shorts data can be successfully used to predict underperformance for equities on a twelve month horizon.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 21508373 | 98850643 | 21.76 |
| 2 | MYR | 77164400 | 583384551 | 13.22 |
| 3 | ISO | 721259 | 5703165 | 12.65 |
| 4 | FXJ | 266808705 | 2351955725 | 11.37 |
| 5 | COH | 6200900 | 56929432 | 10.90 |
| 6 | DJS | 56781241 | 524940325 | 10.82 |
| 7 | CRZ | 25055951 | 233674223 | 10.70 |
| 8 | FLT | 9425372 | 100017679 | 9.41 |
| 9 | LYC | 150007389 | 1714496913 | 8.75 |
| 10 | BBG | 22124924 | 255102103 | 8.67 |
| 11 | HVN | 79375909 | 1062316784 | 7.46 |
| 12 | EGP | 51084803 | 688019737 | 7.41 |
| 13 | ILU | 27209453 | 418700517 | 6.49 |
| 14 | GNS | 54998318 | 848401559 | 6.47 |
| 15 | WTF | 13184931 | 211736244 | 6.24 |
| 16 | TRS | 1551686 | 26071170 | 5.95 |
| 17 | TEN | 60463055 | 1045236720 | 5.78 |
| 18 | BPT | 60698815 | 1115960668 | 5.43 |
| 19 | SGT | 9559694 | 176974336 | 5.40 |
| 20 | PPT | 2230045 | 41980678 | 5.31 |
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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