The Short Report

Array
(
    [0] => Array
        (
            [0] => ((NWS))
            [1] => ((FOX))
            [2] => ((SGT))
            [3] => ((KCN))
            [4] => ((GXY))
            [5] => ((GEM))
            [6] => ((COH))
            [7] => ((PDN))
            [8] => ((SLR))
            [9] => ((IVC))
            [10] => ((FXJ))
            [11] => ((MMS))
            [12] => ((EHL))
        )

    [1] => Array
        (
            [0] => NWS
            [1] => FOX
            [2] => SGT
            [3] => KCN
            [4] => GXY
            [5] => GEM
            [6] => COH
            [7] => PDN
            [8] => SLR
            [9] => IVC
            [10] => FXJ
            [11] => MMS
            [12] => EHL
        )

)

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 10, 2013.

Shorting activity was relatively quiet last week ahead of the the meat of the AGM season. Four short increases of one percentage point or more met one similar decrease. Shorts in the old News Corp listings still dominate but are misleading given the demerger process. However shorts in the new News Corp continue to build. A pairs trade against Fox? Meanwhile shorts in SingTel have grown again with Telstra indicating strong market growth (at the expense of Optus, one presumes). Traders expect Kingsgate Consolidated to struggle against its gearing, it appears.

Five monthly short increases of two percentage points or more met three decreases last week. Shorts in Cochlear continued to rise ahead of an AGM that brokers found unconvincing. Paladin is back in short favour again as the uranium price continues to wallow. Shorts in Invocare continue to build post-result and the McMillan trade is now done and dusted.

Weekly Short Increases

Shorts in News Corp ((NWS)) increased to 18.74% from 7.38%

The process of the split of the old NWS into a new NWS and 21^st Century Fox ((FOX)) and a consolidation of A and B shares has convoluted the short table. While big short positions in any of the elements reflects an arbitrage on the completion of the process, this further increase in News Corp shorts may also reflect a short NWS/long FOX play given the latter is the preferred vehicle in terms of growth forecasts.

Shorts in Singapore Telecom ((SGT)) increased to 2.42% from 0.62%

The week before last, SingTel shorts reduced. Last week they increased again. Telstra’s AGM was held this week, with an increase in market share confirmed. Perhaps reason, in anticipation, to short rival Optus via its owner SGT.

Shorts in Kingsgate Consolidated ((KCN)) increased to 9.73% from 8.45%

Kingsgate has secured further funding to finance its growth plans in a lower gold price environment, and brokers are not as confident as management seems to be. Three FNArena database brokers cover KCN and all have Sell ratings. KCN has ticked up to number 14 on the Top 20 shorted list, from 19 the week before.

Shorts in Galaxy Resources ((GXY)) increased to 1.26% from 0.24%

Galaxy shorts fell to almost nothing a couple of weeks ago following a share placement arbitrage opportunity, but ticked up again last week on new short interest. GXY is not covered by FNArena database brokers.

Weekly Short Decreases

Shorts in G8 Education ((GEM)) decreased to 0.56% from 1.79%

After a long and consistent run up, and an acquisition the previous week, G8 shares finally consolidated in the week in question. The US shutdown probably helped. G8 shorts rose the week before and fell last week, so someone did okay.

Monthly Short Increases

Shorts in News Corp increased to 18.74% from 0.09%

The biggest monthly increase is actually in the old News A shares (NWSLV), up to 71.22%, but this is simply a reflection of plays around the consolidation and demerger. Meanwhile, News Corp proper is now effectively number one on the most shorted list, knocking off Cochlear. See above.

Shorts in Cochlear ((COH)) increased to 15.08% from 11.35%

Cochlear lost its top spot to News on the table this week despite still-growing shorts, ahead of an AGM which suggested management is a lot more confident than brokers on the company’s FY14 fortunes. Brokers fear competition impact, and the shorters have circled.

Shorts in Paladin Energy ((PDN)) increased to 8.54% from 5.83%

Paladin shorts have risen again on a monthly basis, having previously fallen from lofty levels after the company secured fresh funding. Every day the spot uranium price fails to improve the company burns more cash.

Shorts in Silver Lake Resources ((SLR)) increased to 3.57% from 1.10%

Shares in copper and gold producer Silver Lake have been on a slide since August, and if shorts are still growing, the shorters must feel the worst is not yet over in the current environment. SLR runs on a very tight balance sheet and two covering brokers rate the stock a Sell.

Shorts in Invocare ((IVC)) increased to 6.63% from 4.58%

Invocare has not yet reached Top 20 status but having posted a surprisingly weak result a couple of months ago, the shorters have tasted blood from this once high-flying defensive.

Monthly Short Decreases

Shorts in Fairfax Media ((FXJ)) decreased to 10.94% from 14.40%

The Fairfax share price has continued to falter post the result in August and while reducing on this weakness, the short old media trade remains robust with FXJ sitting at 9 on the Top 20 table.

Shorts in McMillan Shakespeare ((MMS)) decreased to 0.8% from 3.15%

Post the coalition election victory, the short trade in McMillan has now all but worked its way out.

Shorts in Emeco Holdings ((EHL)) decreased to 1.97% from 4.08%

Emeco shares have been doing a whole lot of nothing after an initial post-result rebound. Perhaps the shorters have become bored.
 

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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