The Short Report

This story features TREASURY WINE ESTATES LIMITED, and other companies. For more info SHARE ANALYSIS: TWE

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 and monthly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX).

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.

Summary:

Period: Week to, and month to, April 24, 2014.

The ASX 200 had a strong week last week, pushing above the 5500 level before a bit of a correction this week. Shorting activity in general and short interest in particular continues to be modest, with four weekly short increases of one percentage point or more meeting four decreases, and three monthly increases of 2ppt or more meeting four decreases. Note that EFTs are not included in this report nor anything to do with News Corp until the Fox de-listing is completed.

Kingsgate has finally raised capital and there appears to have a been a lot of short fluctuation last week, although the raising is now providing for short covering. Aquarius Platinum is another company having announced a raising. Shorting resource sector service providers has been a sport for a while but interest there has began to ease, with reductions noted in NRW, Fleetwood and Ausdrill last week.

Myer shorts are quietly building, as are shorts in The Reject Shop, as both retailers draw in the non-believers. There was little fluctuation in the Top 20 shorted table last week, although Treasury Wine Estate ((TWE)) has slipped out to again bring M2 Telecommunications ((MTU)) in at number 20.
 

Weekly Short Increases

Shorts in Aquarius Platinum ((AQP)) increased to 3.47% from 1.47%

Aquarius announced a rights issue which last week saw its share price tumble to 40c from 70c. Shorters will be looking to arbitrage the stock against rights received.

Shorts in Singapore Telecom ((SGT)) increased to 5.69% from 4.30%

SingTel shorts fluctuate with tedious regularity without noticeable reason beyond perhaps a telco pairs trade. The share price has been volatile of late despite no new information, suggesting likely more of a currency effect.

Shorts in Silver Lake Resources ((SLR)) increased to 5.55% from 4.49%

Silver Lake has become a favourite of the shorters as a gold price proxy, rising and falling fairly regularly. As the gold price rises, shorters are provided with more opportunity to short SLR.

Shorts in Myer Holdings ((MYR)) increased to 11.79% from 10.73%

Myer has moved up to number 8 from 10 in the Top 20 most shorted as the fallout from the David Jones takeover and increased brand competition become more apparent.

Weekly Short Decreases

Shorts in Kingsgate Consolidated ((KCN)) decreased to 4.26% from 11.99%

Well Kingsgate has finally raised capital, as the shorters long assumed it must, but this fluctuation is confusing. Last week ASIC had KCN shorts falling to 4% from 6%, and this week they’re falling to 4% from 12%. Whatever the case, the shorters can now cover on the raising.

Shorts in NRW Holdings ((NWH)) decreased to 4.71% from 6.05%

NRW shares rose last week on the news the company had won its third contract at the Roy Hill iron ore development. Shorters took cover.

Shorts in Fleetwood ((FWD)) decreased to 3.09% from 4.10%

A month ago Fleetwood’s CEO announced his resignation and the share price has fallen ever since, providing opportunity for shorters to take profits.

Shorts in Ausdrill ((ASL)) decreased to 8.44% from 9.45%

Ausdrill’s fortunes are highly leveraged to the gold price, which rose last week. Shorts have eased but ASL remains in the Top 20 shorted table at 19.

Monthly Short Increases

Shorts in The Reject Shop ((TRS)) increased to 8.84% from 5.37%

Reject shares received a boost late in March on the resignation of the company’s CEO, but have since plateaued. The shorters have nevertheless taken the opportunity to continue to build positions, as shorters love shorting retail. TRS has moved up the Top 20 most shorted list this week to 17.

Shorts in Aquarius Platinum increased to 3.47% from 0.60%

See above.

Shorts in Singapore Telecom increased to 5.69% from 3.08%

See above.

Monthly Short Decreases

Shorts in Kingsgate Consolidated decreased to 4.26% from 10.25%

See above.

Shorts in UGL ((UGL)) decreased to 12.76% from 15.98%

As uncertainty prevails around the likelihood company’s desired spin-off or sale of its DTZ business actually occurring, UGL has been sliding quietly down the Top 20 most shorted table, moving this week to 6.

Shorts in Australian Education Trust ((AEU)) decreased to 0.10% from 2.45%

AEU is not covered by FNArena brokers but the growing number and popularity of education stocks in Australia, such as Navitas and Vocation, suggest the opportunity for some pairs trading between them.

Shorts in Forge Group ((FGE)) decreased to 2.82% from 4.95%

Forge Group is in administration.

 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	QRE	517432	3022150	17.12
2	COH	9503351	57062020	16.65
3	SSO	127368	801304	15.90
4	NWSLV	407619	3115091	13.09
5	MND	11827148	92679570	12.76
6	UGL	21253219	166511240	12.76
7	JBH	12511066	100385400	12.46
8	MYR	69061710	585684551	11.79
9	NWS	2276779	20237280	11.25
10	MTS	98060579	888338048	11.04
11	AGO	96272809	915496158	10.52
12	BKN	17979039	171027249	10.51
13	ACR	16948672	166521711	10.18
14	BLY	45431458	461163412	9.85
15	PDN	93259228	964367284	9.67
16	ILU	40258863	418700517	9.62
17	TRS	2548360	28826248	8.84
18	WSA	20121978	232310014	8.66
19	ASL	26368803	312277224	8.44
20	MTU	14750781	179511351	8.22

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms