The Short Report

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            [0] => ((MRM))
            [1] => ((FMG))
            [2] => ((PRY))
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            [0] => MRM
            [1] => FMG
            [2] => PRY
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This story features MMA OFFSHORE LIMITED, and other companies.
For more info SHARE ANALYSIS: MRM

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 March 31, 2016

Last week saw the ASX200 bottom out smack on 5000 before attempting to rally back towards 5100. That rally failed this week.

In last week’s Report I wrote:

“Perhaps the most notable elements of the table below, showing movements in stocks with short positions of 5% or more, is (a) it’s all green towards the top, meaning short reductions, (b) the number of stocks over 10% shorted has now much reduced from the peak in January, indeed almost by half, (c) the biggest short position is now only 16.7% when numbers above 20% had prevailed for some time, and (d) by the time we get into the 7% and above bracket, the stock numbers really do start to thin.”

Well this week’s table is also dominated by green, this time mostly towards the bottom. The pool of stocks shorted by more than 5% or more is diminishing, and stock numbers in the higher brackets continue to diminish as well.

Given the ASX200’s failure for so long now to either meaningfully rise above 5000 or meaningfully fall below it, we might conclude that the shorters are rapidly losing interest.

FNArena has also noted that while a corporate news vacuum always follows a result season, this year’s vacuum has extended all the way through March and is still present in April with no sign of any change ahead. Right at the moment, very few companies have anything newsworthy to report or disclose, it would appear. In such a vacuum, reasons to short are no doubt fewer.

The shorters still like WA gas service provider MMA Offshore ((MRM)), which for no apparent reason saw its shorts rise to 8.0% last week from 6.8% the week before, but lately all of the resource sector service stocks present in the table have been moving around and their story is now a hackneyed one: low commodity prices, low investment in services.

More interesting is the fall last week in Primary Health Care shorts to 12.1% from 14.6%, likely as a result of a potential Chinese takeover.

Thereafter, there was little in the way of sizeable movement in individual names last week despite a lot of mostly downward bracket creep.

Perhaps worthy of note otherwise is that Fortescue Metals ((FMG)) has continued to wear the shorters down with its substantial cost cutting efforts in the face of the potential for another drop in the iron ore price. Having reached as high as the 9% bracket earlier in the year, Fortescue shorts have steadily slipped away and with the stock now down in the 5% bracket. We may be saying goodbye from the table by next week.

Weekly short positions as a percentage of market cap:

10%+

MTS    16.5
MYR   14.4
WOR   14.0
ORI     12.1
PRY    12.1
MND   11.9
FLT     11.8
WSA   11.0

Out: CAB

9.0-9.9%

AWE, CAB, AWC, JBH
 
In: CAB         

8.0-8.9%

WOW, MRM

In: MRM         Out: MIN

7.0-7.9%

MIN, OSH, GUD, SEK, RFG, IVC

In: MIN           Out: TFC

6.0-6.9%

BEN, SGH, IGO, SUL, TFC, GXL, SHV

In: TFC           Out: MRM, BDR, GEM, NWS, PDN, CTD, ALQ, FMG

5.0-5.9%

NWS, CTD, BDR, PDN, GEM, AAC, ALQ, CAR, SGM, CDD, WHC, AHY, IFL, QUB, FMG, CQR

In: NWS, CTD, BDR, PDN, GEM, ALQ, FMG, AHY        Out: BOQ, BKL, BAL, MGX,

Movers and Shakers

Federal budgets always give shareholders in Primary Health Care ((PRY)) the heebee-geebies and this year’s budget is now less than a month away. As an owner of GP and medical services clinics, Primary is always under threat of government tinkering with public healthcare subsidies. Abbott might be gone and taken is $7 co-payment with him, but it’s still a Coalition government.

That’s why Primary has been a longstanding member of the 10% plus shorted club. But Medicare aside, last month it was revealed Chinese company Jangho Group had moved to a holding of 14% of Primary, prompting the company’s CEO to inquire of Jangho as to its intentions. Is a takeover on the cards?

Whatever the case, some of the shorters decided it’s best not to risk it. Last week Primary shorts fell by 2.5 percentage points to 12.1% from 14.6%.

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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