The Short Report

This story features WOOLWORTHS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WOW

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 September 29, 2016

Last week saw the ASX200 continue to rally back from Fed-related selling following no change to Fed policy. Hopes for an OPEC production freeze also provided a boost.

This week we welcome into the 5% plus table, for the first time in the history of this Report, a member of ASX royalty. As I have noted previously, shorts in Rio Tinto have been quietly building of late. Last week they built to 5.2%.

Rio becomes only the second ASX top 20 company shorted by in excess of 5%, the other being Woolworths ((WOW)).

Perhaps also notable in the context of this week’s gold price plunge is the entry of two gold miners into the table this week alongside the mining giant, being Gold Road Resources ((GOR)) and Resolute Mining ((RSG)).

Aside from the mining story there is only one stock that posted a move in short position of greater than one percentage point last week. Having found a little bit of price support after its significant plunge, residential aged care company Estia Health saw its shorts drop to 7.1% from 8.7% last week.

Perhaps the shorters were a little quick to take profits. Estia shares are down 9% as I write.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.1
WOR   15.0
WSA   13.2
MTS    11.5
BAL    11.1
MND   10.9
FLT     10.3

No changes

9.0-9.9%

CVO
 
Out: AWC                             

8.0-8.9%

AWC, TFC, IGO, BKL, ORI 

In: AWC, IGO, BKL             Out: EHE

7.0-7.9%

MYO, BEN, NEC, SGM, IFL, DOW, WOW, CAB, EHE, SYR

In: EHE                       Out: IGO, BKL, GEM, IVC

6.0-6.9%

SGH, IVC, GEM, AWE, ACX, PRY

In: IVC, GEM, ACX             

5.0-5.9%

OSH, GOR, SEK, NWS, UGL, MSB, RSG, JHC, CTD, RIO, PDN, KAR

In: GOR, RSG, RIO               Out: ACX

Movers and Shakers

For a lot of this year brokers have had a preference for Rio Tinto ((RIO)) over rival BHP Billiton ((BHP)) given BHP is an oil & gas producer alongside its iron ore, coal and copper interests, and Rio is not. A greater downside risk was perceived in oil prices than in iron ore prices.

Now the pendulum has swung the other way. There is little change to iron ore forecasts but oil prices appear to have stabilised, and offer further upside if, indeed, OPEC does come to a production agreement. BHP also offers greater exposure to the stellar run in coking coal prices which has caught the world by surprise. Broker preference is now leaning to BHP over Rio.

It was only a 0.4ppt gain, but this was enough last week to elevate Rio Tinto into our 5% plus shorted table. The Rio/BHP pairs trade is a popular one in the market so increased shorts in Rio are possibly offset by longs in BHP, although we note from the table below BHP is 2.0% shorted. Given both stocks have seen a solid rebound of late, it may just be a naked short play.

The bad news story for the residential aged care sector is far from over, with possible regulatory issues still hanging over the industry, and this week has seen further selling in sector names. Nor does it help that aged care stocks are a yield play, and all yield play stocks are currently being dumped on expectations the global central bank easing cycle is about to end. Estia Health ((EHE)) is so far down 9% today alone.

However last week, Estia shares did find some buying support after a prolonged plunge, which likely hurried some shorters into taking profits. Estia shorts fell 1.6ppt to 7.1%.
 

ASX20 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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