FYI | Feb 20 2013
By Andrew Nelson
With reporting season now in full swing, little further activity has been see from investors shorting stocks or covering shorts. Over the week from sixth to thirteenth of February just one stock saw its short position increase by more than 1 percentage point (ppt) and just one stock was down by that much as well.
JB HiFi ((JBH)) saw its short position lift 1.26ppt from 18.57% to 19.83% on the heels of what was an above consensus 1H report. Both UBS and Credit Suisse downgraded their recommendations post release, not because of the release itself, but rather on too much recent strength in the share price. The downgrades pushed the stock into negative sentiment territory on the FNArena Database, which shows one Buy holding off two Holds and four Sells.
Iluka ((ILU)) enjoyed the biggest decrease, its short position coming off 1.89ppt from 16.26% to 14.37%. Broker commentary over the week in question was fairly consistent in its dim outlook for mineral sands volumes and prices. There was a bit of good news after the week, with Rio Tinto saying it would be cutting production of rutile and zircon at Richards Bay Minerals, which represents about 15% of global supply. Sentiment for the stock remains positive, with five Buys, one Hold and two Sells.
There were a few more significant moves on a monthly basis. SingTel ((SGT)) posted the biggest increase in short position, up 4.12ppt from 1.97% to 6.09% in the lead-up to what turned out to be a fairly in-line set of 2Q results. Sentiment is positive on four Buys and three Holds. The next stock on the list is GUD Holdings ((GUD)), which advanced 3.69ppt from 2.25% to 5.94%. Sentiment remains on a negative footing in the database, with five Holds and one Sell recorded.
Mesoblast ((MSB)) is up 2.79ppt from 3.44% to 6.23% after reporting a 1H loss that was fairly well received despite it being a bit bigger than expected. The standout was Macquarie, who sits at Sell. The broker believes there are so many unanswered questions about stem cell research, which is opening doors to some severe disappointment in the future. Macquarie’s Sell stands opposed to three Buys, which means sentiment is positive.
Lynas Corp ((LYC)) maintained its regular monthly inclusion, its short position advancing 2.5ppt from 6.56% to 9.06% over the month. JP Morgan summed up the view on Lynas in a report from a week ago, saying it expects a re-rating will occur in the months ahead as the Malaysian project de-risks and the threat of regulatory action diminishes. Otherwise, there is no change to the positive sentiment skew in the database, with shares offering almost 40% upside to the consensus price target.
Shorts in Kingsgate Consolidated ((KCN)) were up 2.33ppt from 5.8% to 8.13% over the month in question. Citi downgraded its call to Hold in late January on a too high share price, otherwise believing the company was on track to hit FY targets. A few days later Macquarie came out and said it sees potential downside risk to production in the second half and downgraded FY13 earnings by around 14%. No surprise that the latter broker sits at Sell. Overall sentiment is negative, with three Holds and Macquarie’s Sell on show in the database.
Our last big increase was booked by SMS Management ((SMX)), with its short position up 2.25ppt from 1.7% to 3.95%. Both CIMB and UBS updated their views on the stock a few weeks back talking about negative momentum in end markets. UBS went so far as to cut earnings estimates by 5% for FY13 and FY14, believing the fourth quarter conditions deteriorated compared with guidance at the AGM. Sentiment remains Neutral.
The biggest monthly decrease in short position was booked by Silver Lake Resources ((SLR)), its short position coming off 2.81ppt from 3.58% to 0.77%. Both Macquarie and Deutsche Bank initiated coverage on the stock with Buy calls two weeks back. Macquarie believes the market is currently not pricing in any synergies that will be achieved from the corporate merger with Integra Mining. Sentiment is positive in the database. Next, Linc Energy ((LNC)) saw its short position come off 2.47ppt from 5.53% to 3.06%.
Boral’s ((BLD)) short position has come off 2.07ppt from 5.14% to 3.07%. While outside of the period in question, the company did report results last week that while not great, weren’t badly received. Sentiment remains positive for the stock on four Buys, one Hold and three Sells. Our last stock is Primary Healthcare ((PRY)), its short position pulling back 2.06ppt from 5.24% to 3.18% over the month in question. The company put out a well revived set of 1H numbers earlier in the month that saw no change to its positive sentiment footing.
Other than a few very minor position changes, the Top 20 most shorted stocks list remains unchanged from last week.
Top 20 Largest Short Positions
| Rank | Symbol | Short Position | Total Product | %Short |
| 1 | JBH | 19651885 | 98850643 | 19.88 |
| 2 | FXJ | 374963378 | 2351955725 | 15.94 |
| 3 | ILU | 60067894 | 418700517 | 14.35 |
| 4 | MYR | 81762254 | 583384551 | 14.02 |
| 5 | PDN | 109107737 | 836825651 | 13.04 |
| 6 | MTS | 105482091 | 880704786 | 11.98 |
| 7 | DJS | 63470160 | 531788775 | 11.94 |
| 8 | FLT | 11548062 | 100170726 | 11.53 |
| 9 | HVN | 114219309 | 1062316784 | 10.75 |
| 10 | CSR | 48869687 | 506000315 | 9.66 |
| 11 | TRS | 2462292 | 26092220 | 9.44 |
| 12 | LYC | 177450052 | 1960801292 | 9.05 |
| 13 | KCN | 12092207 | 151828173 | 7.96 |
| 14 | MND | 7206023 | 90663543 | 7.95 |
| 15 | ACR | 12929120 | 166496711 | 7.77 |
| 16 | COH | 4104075 | 57026689 | 7.20 |
| 17 | AWC | 168916299 | 2440196187 | 6.92 |
| 18 | BKN | 11148782 | 169240662 | 6.59 |
| 19 | WSA | 12569918 | 196843803 | 6.39 |
| 20 | GNS | 51558226 | 848401559 | 6.08 |
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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