Australia | May 15 2014
Welcome to the new-look FNArena weekly Short Report. We felt the value of the old-style report had diminished for readers, often sinking into tedious repetition and often highlighting largely insignificant movements given the rigidity of the report's structure. We also felt the published Top 20 table was of limited value.
This new report tables all short positions in excess of 5%, no matter their number, divided for quick reference into percentage bands. Significant movements are highlighted, and commentary is provided below the table (Movers and Shakers) if we feel there is a tale worth telling or an explanation is required. We hope this new report proves a more valuable weekly reference service for readers. Feedback is encouraged.
Guide:
The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.
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.
Stock codes highlighted in green have seen their short positions reduce in the week by a percentage point or more. Stocks highlighted in red have seen their short positions increase in the week by a percentage point or more.
Summary:
Week ending May 8, 2014:
Movements in short positions have slowed to a crawl as the ASX 200 flirts with post-GFC highs and looks for the next directional catalyst. Activity no doubt slowed down ahead of this week's federal budget, and the potential for individual sector and stock positives and negatives it might bring, as well as several earnings reports out this week. There was very little change among the most shorted stocks.
Weekly short positions as a percentage of market cap:
10%+
COH 17.0
MND 12.6
AGO 11.5
MTS 11.3
JBH 11.0
NWS 10.9
UGL 10.7
MYR 10.5
BLY 10.1
9.00-9.99%
TRS, BKN, LEI, ILU, ACR, PDN, MTU
8.00-8.99%
ASL, WSA, TWE
7.00-7.99%
SGT, TSE, ALQ, HZN, CAB
6.00-6.99%
MSB, LYC, SCP, NXT, TEN, WHC, NUF, DSH, FLT
5.00-5.99%
SGM, KAR, SBM, VET, HVN, FMG, SPL, SAI, RRL
Movers and Shakers
UGL ((UGL)) shorts dropped by 1.25% last week, albeit only to 10.68%, possibly because of this week’s budget and anticipation of increased government infrastructure spending. UGL did indeed enjoy a bump up yesterday.
On the subject of the budget and infrastructure, Transfield ((TSE)) shares shot up 11% yesterday. Other than positive budget implications, TSE announced fresh debt financing and confirmed heavily skewed second half guidance, providing a cautious market with increased confidence. And last week TSE shares were 7.8% short, suggesting some scrambled covering.
Leighton Holdings ((LEI)) is another infra-winner, but Hochtief’s bid to acquire most of LEI’s capital has driven increased shorting ahead of a likely credit rating downgrade and omission from the index. LEI shorts increased to 9.7% from 8.7% last week.
Singapore Telecom ((SGT)) shorts tend to jump up and down regularly, and last week they jumped to 7.8% from 6.7%. SingTel releases its full-year result today.
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.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.