The Short Report

Array
(
    [0] => Array
        (
            [0] => ((IGO))
            [1] => ((WSA))
            [2] => ((ORI))
            [3] => ((WOW))
            [4] => ((MNRS))
            [5] => ((MLX))
            [6] => ((AMP))
            [7] => ((SUN))
            [8] => ((IAG))
            [9] => ((RIO))
            [10] => ((BHP))
        )

    [1] => Array
        (
            [0] => IGO
            [1] => WSA
            [2] => ORI
            [3] => WOW
            [4] => MNRS
            [5] => MLX
            [6] => AMP
            [7] => SUN
            [8] => IAG
            [9] => RIO
            [10] => BHP
        )

)

This story features IGO LIMITED, and other companies.
For more info SHARE ANALYSIS: IGO
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

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 August 4, 2016

Well, either there has been an awful lot of taking off of short positions and putting them back on again ahead of and in the early stages of result season, or once again I have to question the veracity of the ASIC data. Last week I highlighted just how many pre-season short positions had been reduced, some by quite a margin, and this week I’m forced to note there’ll all back again, pretty much where they all were the week before.

I’m therefore not going to make note of these restorations in Movers & Shakers, because they otherwise defy explanation. Readers can compare previous Reports.

I will note this week shorts in nickel miner Independence Group ((IGO)) have fallen by 1ppt and shorts in nickel miner Western Areas ((WSA)) have risen by more than 1ppt. Shorts in explosives supplier Orica ((ORI)) have risen by more than 1ppt and shorts in Woolworths ((WOW)) have not moved despite the big share price jump in the period in question, which smacked of short-covering.

Maybe all this will change next week.

Movers & Shakers will therefore concentrate only on a couple of new additions to the table, both of which involve gold.

Weekly short positions as a percentage of market cap:

10%+

MYR 16.2
MTS 14.2
WOR 13.7
FLT 12.3
WSA 10.5
MND 10.1

In: WSA

9.0-9.9%

CVO, MLX, BAL, ORI

In: MLX, ORI Out: WSA

8.0-8.9%

AWC, BEN, IFL, CAB

In: BEN, IFL, CAB Out: IGO

7.0-7.9%

MYO, WOW, OSH, ISD, CTD, JBH, AWE, IVC

In: AWE Out: ORI, CAB

6.0-6.9%

NEC, SGH, DOW, NWS, IGO, TFC, SYR, ANN, PRY

In: IGO, NEC, DOW, SYR, ANN, PRY Out: BEN, IFL, AWE

5.0-5.9%

SGM, QUB, MSB, SEK, OFX, KAR

In: SGM, OFX, KAR Out: SYR, AAC

Movers and Shakers

This Report is concerned with ordinary shares only, and not with preference shares, ETFs or any other more varied instruments that occasionally turn up in the short table. However one EFT did appear this week which I believe is worth a mention.

The currency-hedged Betashares Global Gold Miners EFT ((MNRS)) has appeared from nowhere at 14.8% shorted. This may well be part of long-short play that might involve a gold price instrument on the other side or something similar.

Diversified miner Metals X ((MLX)) has also appeared from nowhere to be 9.6% shorted. The company has completed a capital raising via a placement ahead of demerging its gold division. The short position suggests an arbitrage play on this action.

It’s also worth noting, in reference to the Top 20 table below, that AMP ((AMP)), Suncorp ((SUN)) and, to a lesser extent, Insurance Australia Group ((IAG)) all saw reasonable increases in short positions last week. There appears to be a wealth manager/insurer theme here.

We also note that a 0.4ppt increase in Rio Tinto ((RIO)) shorts take the position to 4.1% and hence not far off an appearance in the 5% plus table. By contrast BHP Billiton ((BHP)) is 2.0% shorted.

ASX20 Short Positions (%)

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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