The Short Report

This story features SYRAH RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SYR

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:

Month ending January 18, 2018

Welcome to the first Short Report for 2018. As the Short Report has been on annual leave for a month, we start the year by noting changes in short positions from a month ago, just before Christmas, to last week. As of next week, the Report will revert to its normal week on week comparison.

The first observation one can make is that not a lot has changed in that time, although there are still some substantial moves. Notably, the top six shorted stocks on the ASX remain not only exactly the same since last year, but in the exact same order.

Late in 2017 I highlighted that the total number of stocks shorted by 5% or more was gradually reducing. Through most of 2017 the count would have run into the fifties, but late in December it was 47. We begin 2018 with 43.

For most of 2017 there would have been around 15 stocks shorted by 10% or more. Late in December there were 10. We begin 2018 with 7.

For most of last year, the 10% plus shorted club was dominated by battery-related miners, nickel miners and retailers. We note that as of last week, graphite producer Syrah Resources ((SYR)) retains top spot, but shorters have begun to select between the lithium mining fraternity, rather than just blanket shorting.

Galaxy Resources ((GXY)) is little changed on 8.8% shorted. Orocobre ((ORE)) has fallen to 6.7% shorted from 8.2% last year. Pilbara Resources ((PLS)) has reappeared from under 5% to 6.4%.

Nickel miner Independence Group ((IGO)) retains second place, albeit at 16.7% rather than last year’s 18.7%. Peer Western Areas ((WSA)) has nevertheless seen its shorts reduced to 7.8% from 10.1%.

Leaving the 10% plus club are Ardent Leisure ((AAD)) and Aconex ((ACX)), in both cases following corporate action, along with Western Areas and outdoor advertiser APN Outdoor ((APO)), which has been replaced by the only 10% plus newcomer, peer HT&E ((HT1)).

For years, retailers Myer ((MYR)) and Metcash ((MTS)) had been incumbent 10% plus club members. Myer is now 9.0% shorted and Metcash 8.4%. Harvey Norman ((HVN)) sat above 10% for months last year but it is now down to 8.5%. JB Hi-Fi ((JBH)) still holds its place at 14.9%, along with the embattled Retail Food Group ((RFG)) on 13.2%.

For years, resource sector contractor Monadelphous ((MND)) held the top or near-top position. The stock has now dropped below 5% shorted.

The one big mover up the table since last year is Mayne Pharma ((MYX)). It, too, sat in the 10% club for some months before almost falling off the table altogether, but now the shorters have reset Mayne at 9.1%, up from 8.0% late last year.

Post-merger, Tabcorp ((TAH)) has dropped out from a prior 6.3%.

Despite the reduction in net shorts we welcome two newcomers into the bottom of the table to start 2018, commercial litigator IMF Bentham ((IMF)) and salmon farmer Tassal Group ((TGR)). IMF is not covered by any FNArena brokers but four cover Tassal, and the issue there is one of falling global salmon prices.

That about sums up the month. Movers & Shakers will return next week.

Weekly short positions as a percentage of market cap:

10%+

SYR    20.2
IGO     16.7
DMP   16.6
JBH     14.9
HSO    13.4
RFG    13.2
HT1     10.2

In: HT1           Out: AAD, ACX, APO, WSA                      

9.0-9.9

APO, FLT, GXL, MYX, AAD, MYR
 
In: APO, AAD, GXL, MYX             Out: HT1, HVN, VOC, MTS                                                

8.0-8.9%

VOC, GXY, AAC, HVN, MTS, QIN, NWS

In: VOC, HVN, MTS, AAC              Out: GXL, ORE

7.0-7.9%

WSA, NXT, TPM, BAP, ISD, SHV

In: WSA, BAP                        Out: MYX, AAC, NSR

6.0-6.9%

ORE, GTY, PLS, JHC, BEN, WEB, GMA, AHG, RIO

In: ORE, PLS, WEB, GMA               Out: BAP, RIO, TAH, KAR, CSR, SEK

5.0-5.9%

IMF, TGR, KAR, CSR, RIO, SEK, NAN, QUB, IPD

In: KAR, CSR, RIO, SEK, IMF, TGR          Out: WEB, GMA, PRU, BKL. MND

                       
Movers and Shakers

See above.

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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