The Short Report

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(
    [0] => Array
        (
            [0] => ((NWS))
            [1] => ((GEM))
            [2] => ((LEI))
            [3] => ((MBN))
            [4] => ((SGT))
            [5] => ((MMS))
            [6] => ((COH))
            [7] => ((IVC))
            [8] => ((VAH))
            [9] => ((FLT))
            [10] => ((MMS))
        )

    [1] => Array
        (
            [0] => NWS
            [1] => GEM
            [2] => LEI
            [3] => MBN
            [4] => SGT
            [5] => MMS
            [6] => COH
            [7] => IVC
            [8] => VAH
            [9] => FLT
            [10] => MMS
        )

)

This story features NEWS CORPORATION, and other companies.
For more info SHARE ANALYSIS: NWS
The company is included in ASX200, ASX300 and ALL-ORDS

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly and monthly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX).

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Summary:

Period: Week to, and month to, October 3, 2013.

Last week represented the lull between the main August reporting season and September consumer discretionary reporting season and the October AGM season. There was very little broker research about, because there was very little new company news about. With the now upon us AGM season the next catalyst, shorting activity went quiet. In reality, there were only two short increases of one percentage point or more and three similar decreases. Market darling G8 Education is a new face amongst the growing shorts while Leighton’s woes appear to have been pre-empted. The big plunge in Mirabela Nickel on a lost deal saw the shorters cash in.

I say “in reality” because there were actually some big short increases amongst the stable of stocks which make up the old News Corp. This is all about the complex demerger process nearing its end, as is explained below.

On a monthly basis, the final echoes of result season are all that can be heard. There were only three monthly shorts increases of two percentage points or more reflected last week and two decreases. Other than the News Corp influence, there was no change to the Top 20 shorted list last week bar small positional moves.

Weekly Short Increases

News Corporation Demerger

Topping the list of weekly short increases last week are positions reflecting the final split of the old News Corporation into its new parts and the end of the transition period for the completion of that split. The brief period when “New News Corp” traded under the code NNC is now over and the publishing arm of the group has now returned to being called just “News Corp” with its old code of NWS. The “A” non-voting and “B” voting share mix also had to be dealt with.

Hence we have a 70.48ppt increase in News Corp A shorts (NWSLV), a 6.42ppt increase in News Corp B shorts ((NWS)) and a 5.42ppt increase in the other entity, 21^st Century Fox A shorts (FOXLV). These moves reflect demerger squaring and not specifically a market belief News Corp shares will fall in price.

Shorts in G8 Education ((GEM)) increased to 1.79% from 0.67%

Shares in G8 have been trending upward in a straight line since late 2011. The company has rapidly been acquiring further child care centres and has become a market darling, with many an analyst suggesting G8 is what ABC Learning was not in terms of investment appeal. It looks like the shorters are starting to think the golden run might be overstretched now.

Shorts in Leighton Holdings ((LEI)) increased to 5.75% from 4.78%

The week in question here ended the day before the Leighton bribery allegations sent the share price tumbling 10%. Interesting.

Weekly Short Decreases

Shorts in Mirabela Nickel ((MBN)) decreased to 3.31% from 4.97%

Two of Mirabela's offtake partners pulled the pin in the week in question, sparking a routing of MBN shares. A popular shorters stock in the face of volatile nickel prices, MBN saw some of those shorters cash in.

Shorts in Singapore telecom ((SGT)) decreased to 0.62% from 1.98%

SingTel shorts have been quietly reducing since the election as the share price has risen, likely reflecting greater potential under the Coalition’s NBN policy.

Shorts in McMillan Shakespeare ((MMS)) decreased to 0.78% from 1.95%

Since the market correctly picked an election victory for the Coalition, a rebounded McMillan has been drifting off ever since on a “sell the fact” trade. The shorters have been cashing in.

Monthly Short Increases

The News Corp-related numbers also impact on the monthly movements. See above.

Shorts in Cochlear ((COH)) increased to 14.99% from 11.10%

It was confirmed to the market in the week in question that Cochlear had not won a Chinese tender, thus killing off, for the time being at least, the prospects of a new growth region for its hearing devices. The shorters had already taken COH to the top of the Top 20 again the week before, as this monthly move reflects.

Shorts in Invocare ((IVC)) increased to 6.42% from 3.62%

This monthly move reflects the ongoing post-season impact of a rare weak result from Invocare, reflecting fewer Australasian deaths can be normally relied upon. While analysts see such weakness as a blip, the shorters have moved in on a stock otherwise well valued by the market for its defensive reliability.

Shorts in Virgin Australia ((VAH)) increased to 5.87% from 3.48%

This monthly move continues to reflect the increase in shorts Virgin attracted after a well-received result sparked a share price jump. Brokers are not too convinced in VAH’s upside either, and the stock has more recently drifted lower.

Monthly Short Decreases

Shorts in Flight Centre ((FLT)) decreased to 2.98% from 6.14%

Flight Centre shares have begun to drift lower after a big jump in the wake of yet another market-beating result. FLT has nevertheless been quietly moving down the short table after an initial short-covering scramble after the post-result surge.

Shorts in McMillan Shakespeare ((MMS)) decreased to 0.78% from 3.51%

See above.
 

Top 20 Largest Short Positions

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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