The Short Report

This story features NINE ENTERTAINMENT CO. HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: NEC

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 November 17, 2016

Last week saw the ASX200 level out after the initial Trump rally as the market seemingly paused to contemplate exactly what a Trump presidency might mean. Only as the President-Elect appeared to pull back from his campaign rantings, and Wall Street hit new highs, did the index take off again this week.

The period of contemplation brought little movement in short positions, as the table below suggests. However there were some notable moves – not due to any Trump impact – at the top end of the table.

A couple of weeks ago, media company Nine Entertainment ((NEC)) and SaaS company Aconex ((ACX)) entered the 10% plus shorted club for the first time. Their stories were covered by the Short Report that week. Last week Nine shorts increased to 12.4% from 11.2% and Aconex shorts increased to 12.3% from 11.8%.

Last week saw two new entries into the 10% plus club.

Sandalwood producer TFS Corp ((TFC)), which has now changed its name to Quintis, has been hanging around in the 5% plus shorted table for a very long time and more recently short positions have been building. Last week saw the stock sneak over the 10% mark from 9.9% the week before.

A more dramatic increase was posted by G8 Education, which saw its shorts jump to 10.2% from 9.1%.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.2
WSA   14.8
WOR   13.4
BAL    12.8
NEC    12.4
ACX   12.3
MTS    11.5
MND   10.2
GEM   10.2
TFC     10.1

In: GEM, TFC

9.0-9.9%

AWC
 
Out: GEM, TFC                                 

8.0-8.9%

VOC, NWS, HSO, MTR, ORE, JHC

In: HSO, ORE                        Out: SYR                               

7.0-7.9%

IGO, CVO, BEN, DOW, IVC, IFL, BKL, FLT, MYO, RIO

In: BKL                      Out: ORE, EHE

6.0-6.9%

ORI, SGH, GTY, EHE, PRY, WOW, SEK, OSH, ILU, MSB, PDN, GOR, AWE

In: EHE, ILU              Out: BKL, SGM

5.0-5.9%

KAR, NXT, SPO, SGM, CAB, CSR, DMP, IPH

In: SGM, KAR, IPH              Out: ILU

Movers and Shakers

There has been no news news out of child care centre operator G8 Education ((GEM)) since the company’s earnings release in August. However child care as a topic is oft discussed in the general media. Availability, or lack thereof, cost, and government policy are indeed very hot topics among Australian families.

The week covered by this Report had ended before the Fairfax press published a damning report on one particular child care chain owned by private equity, indeed the same firm that acquired and re-floated Dick Smith for a tidy profit ahead of the company’s demise. There is no connection to G8 other than the child care sector itself.

The shorts are nevertheless building in G8. Many will be able to cast their minds back to the once high-flying, highly government-subsidised ABC Learning which crashed spectacularly in the Credit Crunch that preceded the GFC. Perhaps that memory has an influence.

 

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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