FYI | Jul 03 2012
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By Chris Shaw
Weekly changes in short positions for the period from June 19 saw increases of more than one percentage point easily outnumber decreases to the tune of seven to two.
The largest increase was in David Jones ((DJS)), where positions rose to 10.38% from 8.36% previously. The increase came prior to the rumoured takeover proposal for the company and followed what had been disappointing 3Q sales for the retailer.
David Jones was not the only retailer for which shorts increased in the week from June 19, as positions in The Reject Shop ((TRS)) also rose to 8.18% from 6.39% previously. The changes don't appear to have been driven by any announcements from the company but reflect changes to in substantial shareholdings during the period.
Myer ((MYR)) was another retailer for which short positions increased during the period, rising to 11.67 from 10.24% the week before. Again there were few announcements from the company other than news of a new store in Darwin, while there were a few announced changes in major shareholdings.
Myer, David Jones and The Reject Shop remain among the top 20 short positions on the Australian market, along with other retailer-based plays including Billabong ((BBG)), Harvey Norman ((HVN)), Flight Centre ((FLT)) and Carsales.com ((CRZ)).
Others in the top 20 largest short positions list include Paladin ((PDN)) and Iluka ((ILU)) among the resource plays, Cochlear ((COH)) and Mesoblast ((MSB)) among healthcare and biotech companies and Echo Entertainment ((EGP)) and Fairfax ((FXJ)) among the industrial plays.
JB Hi-Fi ((JBH)) continues to be the company with the largest short position on the Australian market but as RBS Australia notes, total shorts in the stock have fallen over the past two weeks by 2.6 percentage points to 21.7%.
According to RBS the negative momentum in the TV category has eased somewhat in recent months, which gives increased confidence JB Hi-Fi can meet full year earnings guidance. Given a currently attractive earnings multiple, JB Hi-Fi is RBS's preferred exposure in the discretionary retail sector.
Senex Energy ((SXY)) also saw short positions jump to 2.11% from less than 0.5% previously, this despite the company spudding the Shocking 1 well that subsequently delivered oil shows worth testing further.
Shorts in Murchison Metals ((MMX)) increased to 2.19% from 0.95% for the week, this prior to the company announcing its intention to seek approval for a capital return to shareholders.
An increase in shorts in Cabcharge ((CAB)) to 2.01% from 0.51% previously follows news the Reserve Bank of Australia is assessing surcharge fees applied to credit card transactions. While management has indicated there is unlikely to be a direct impact on Cabcharge it adds to uncertainty in the view of Macquarie.
The largest fall in short positions was in the IShares S&P/ASX High Dividend derivative, where total positions declined to 1.33% from 3.44% in the week from June 19. In terms of specific stocks the largest fall was in Echo Entertainment ((EGP)), where positions moved to 6.09% from 7.49% prior to the group re-negotiating some debt terms but after a capital raising had been factored in by the market.
With respect to monthly changes the major increases have been in Fairfax and The Reject Shop, while Seven West ((SWM)) shorts also rose by more than two percentage points, which came prior to the company reiterating earnings guidance for this year but indicating there remains pressure on FY13 earnings.
SingTel ((SGT)) and Linc Energy ((LNC)) also experienced increases in shorts for the month from May 25, both seeing increases of more than two percentage points despite little in the way of announcements to impact on investor views on the stocks.
Bradken ((BKN)) enjoyed the largest fall in shorts for the month, positions declining to 1.33% from 3.5%, this following a report by Macquarie indicating perceived balance sheet stress for the group was a non-issue given a currently robust sales environment.
Despite a disappointing profit result late last month shorts in Elders ((ELD)) have fallen in the month from May 25 to 3.61% from 5.62%. The result suggested debt remains too high and consensus market forecasts appear too optimistic, but at the same time showed management is making some progress in turning around the business.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 21457044 | 98850643 | 21.71 |
| 2 | FXJ | 343794850 | 2351955725 | 14.62 |
| 3 | FLT | 12354227 | 100039833 | 12.35 |
| 4 | CRZ | 28615710 | 233689223 | 12.25 |
| 5 | MYR | 68102760 | 583384551 | 11.67 |
| 6 | COH | 6309219 | 56929432 | 11.08 |
| 7 | LYC | 178962250 | 1714846913 | 10.44 |
| 8 | DJS | 54856855 | 528655600 | 10.38 |
| 9 | BBG | 25419588 | 257888239 | 9.86 |
| 10 | HVN | 101809015 | 1062316784 | 9.58 |
| 11 | ILU | 39372102 | 418700517 | 9.40 |
| 12 | PDN | 78185555 | 835645290 | 9.36 |
| 13 | GNS | 75429556 | 848401559 | 8.89 |
| 14 | TRS | 2132461 | 26071170 | 8.18 |
| 15 | LNC | 38953547 | 504487631 | 7.72 |
| 16 | CSR | 38107642 | 506000315 | 7.53 |
| 17 | ISO | 419055 | 5703165 | 7.35 |
| 18 | WTF | 15206681 | 211736244 | 7.18 |
| 19 | MSB | 18189889 | 284478361 | 6.39 |
| 20 | EGP | 41894654 | 688019737 | 6.09 |
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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