The Short Report

This story features ORICA LIMITED, and other companies. For more info SHARE ANALYSIS: ORI

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 an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending April 2, 2015.

Last week saw a continuation of the previous week's choppiness in the ASX200 but despite the volatility, the index went largely nowhere. Interest rate speculation on both sides of the Pacific was rife. The frenzy of activity from the short-side which characterised the previous two weeks, initially reductions and then increases once more, gave way to sedateness last week. There was a little bit of minor bracket creep in our table, up and down, but only one stock saw a short position movement of more than one percentage point.

That stock is Mesoblast — a regular face on the 5% table and now, suddenly gone, from 8% the week before. Meso's stunning move follows shenanigans from biotech peer Acrux over the previous two weeks. Either something strange is going on in the sector or the data is questionable.

In the last Report we welcomed Orica ((ORI)) as a new member of the elite 10% plus shorted club. This week we welcome Flight Centre, another stock that has not been as shorted in the history of this Report.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   18.2
MTS    17.1
MND   14.0
FMG   12.5
MIN    12.1
ORI     11.8
PRY    11.7
CDD   10.7
UGL    10.5
FLT     10.4
AGO   10.3

In: FLT           

9.0-9.9%

KAR, MRM, JBH
 
In: MRM                     Out: FLT, ACR

8.0-8.9%

ACR, PBG, SGM, ALQ, ILU, SXY

In: ACR, ILU            Out: MRM, SUL, MSB

7.0-7.9%

SUL, WHC, NXT, MGX, DSH, KCN, WOW, JHC, AWE

In: SUL, AWE            Out: ILU

6.0-6.9%

WOR, NWH, CAB, ARI, KMD, VOC, RRL

In: ARI, KMD, VOC, RRL               Out: AWE, TPI

5.0-5.9%

TPI, ASL, COH, PDN, BCI, GNC, GWA, NST, TRS, SIR, VRT

In: TPI, VRT               Out: ARI, KMD, VOC, RRL, NWS, SWM
 

Movers and Shakers

It was only an increase of 0.7ppt in the week to 10.4% from 9.7%, but the significance is we welcome Flight Centre ((FLT)) into the elite 10% club for the first time in the history of this Report. The market has turned sour on Flight as the Aussie dollar has retreated, killing off the cheap international travel bonanza. And the stock did reach solid valuation prior.

Brokers argue Flight’s offshore business will offset with inbound, and domestic travel will pick up locally where international leaves off. Six buy ratings on the FNArena database suggest the sell-off has been overdone. But the shorters clearly think there’s more downside.

Last week I noted, of biotech Mesoblast ((MSB)). “The stem cell hopeful often flies around our table but rarely leaves”. Well guess what, Meso has gone, disappearing off the 5% plus table from 8.0% the week before.

There’s been some wild swings in biotech short positions these past couple of weeks, with Acrux ((ACR)) initially flying up and down and now Meso, despite no new news from the companies. Strange days indeed. Acrux slipped one percentage bracket last week on a small move.

To view ASIC's more comprehensive short tables, click here. [Please note, while daily and weekly ASIC data appear up to date, monthly data do not.]
 

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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