The Short Report

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By Chris Shaw

Changes in short positions for the week from June 5 showed a clear division, as while no stock saw increases of more than one percentage point there were a number of companies for which total shorts declined by more than two percentage points.

The largest decline was in Nexus ((NXS)), where shorts fell to 0.15% from 9.59% previously. The fall in positions came following news commercial arrangements for the Crux Field have been expanded to include some earlier development concepts.

The next largest decline in shorts was in Tishman Speyer ((TSO)), where positions declined to 0.01% from 5.92% previously. This reflects the upcoming de-listing of the group following the distribution of US asset sale proceeds to shareholders and a winding up of the company.

Shorts in Sundance Resources ((SDL)) fell to 0.6% from 2.6% the week prior as the company completed a placement of $40 million in new shares to further develop the Mbalam project, while shorts in Elders ((ELD)) fell to 3.31% from 5.45% following news Ruralco Holdings ((RHL)) acquired a 10.1% strategic stake in the company. Ruralco has indicated it has no current intention to make a takeover offer for Elders.

With no major increases in short positions the largest short interests among ASX-listed stocks continue to be dominated by companies with exposure to the consumer discretionary sector. This includes the likes of JB Hi-Fi ((JBH)) Billabong ((BBG)), Myer ((MYR)), David Jones ((DJS)) and Harvey Norman ((HVN)).

Others in the top 20 include Lynas Corporation ((LYC)), Iluka ((ILU)) and Paladin ((PDN)) among the resource sector and industrials such as gaming group Echo Entertainment ((EGP)), building materials play CSR ((CSR)) and biotech Mesoblast ((MSB)).

With respect to monthly changes in positions for the period from May 11, the largest increases were in Linc Energy ((LNC)) and Myer ((MYR)) at just over two percentage points each. Linc has seen little in the way of news since replying to an ASX price query that targets for FY12 were expected to be met, while a recent investor day from Myer left brokers with the view sales growth remains an issue for the company.

Among the largest falls in short positions for the month were Spark Infrastructure ((SKI)), where AGM commentary included news of some management changes and some strategic changes designed to simplify the group's structure.

Bradken ((BKN)) enjoyed a fall in shorts to 1.73% from 4.94% as the market completed the adjustment to earlier news of some issues in the group's rail division, while shorts in Echo fell to 6.36% from 8.93% as the market adjusted expectations to reflect a trading update in the period.

Shorts in Mirabela Nickel ((MBN)) fell for the month to 3.11% from 5.13%, this as the market factored in a $120 million capital raising that should help put to rest investor fears with respect to the state of the group's balance sheet.

As noted by RBS Australia, shorts in Coca-Cola Amatil ((CCL)) have risen over the past month by more than 0.5 percentage points to more than 1.6%. In the broker's view this reflects the fact the stock is fully valued at current levels, even allowing for what is regarded as a strong medium-term growth profile.

 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	23973358	98850643	24.26
2	MYR	72378948	583384551	12.39
3	CRZ	28135705	233689223	12.03
4	FLT	11716554	100039833	11.71
5	COH	6508795	56929432	11.40
6	FXJ	257845008	2351955725	10.97
7	DJS	57428510	528655600	10.83
8	LYC	182432879	1714846913	10.61
9	HVN	102459626	1062316784	9.62
10	BBG	24772467	257888239	9.60
11	ILU	38033593	418700517	9.07
12	PDN	75531506	835645290	9.03
13	GNS	74495950	848401559	8.77
14	CSR	38615647	506000315	7.63
15	WTF	15548636	211736244	7.34
16	ISO	413769	5703165	7.26
17	LNC	35079085	504487631	6.94
18	EGP	43684076	688019737	6.36
19	MSB	17992548	284478361	6.32
20	TRS	1570006	26071170	6.01

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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