The Short Report – 12 Mar 2020

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

See Guide further below (for readers with full access).

Summary:

Week ending March 5, 2020

Having fallen -7.5% the week before, last week the ASX200 fell another -4% after a couple attempts at finding a bottom failed. This week it’s been net downhill again.

Another week, another sharp drop due to the virus, with the February earnings results season now but a distant memory. It is not clear whether the shorters are simply shell-shocked, but for the first time in quite a while there were no short position changes of one percentage point or more last week. Maybe they’re just waiting to see how far this goes.

We can note a little bit of profit-taking in long-time short favourite JB Hi-Fi ((JBH)), along with more recent 10%-plus club dwellers Costa Group ((CGC)) and Webjet ((WEB)). The latter has as of time of writing fallen -54% from its February high.

Also notable is a steady move up in short positions of investment managers. Perpetual ((PPT)) leads the charge, having crept up during the virus sell-off and as at last week 9.5% shorted. Further down the table, IOOF Holdings ((IFL)) is steady at 5.7% shorted while AMP ((AMP)) and Challenger ((CGF)) have reappeared at 5.5% and 5.2% respectively.

We also note that having popped back in the week before, Nine Entertainment ((NEC)) has popped back out again. While the stock has not escaped the sell-off, the thinking is media companies will benefit from the virus as everyone desperately follows the news, and stays at home.

As to whether this will translate into greater ad revenues is a questionable, although I do note travel agents, cruise lines and the Trivagos of this world continue spend.

Good money after bad, I would have thought.

No Movers &Shakers this week.

Weekly short positions as a percentage of market cap:

10%+
GXY   20.1
SYR    17.9
ORE    13.9
SDA    13.2
ING     13.2
MTS    12.6
NEA    11.1
GWA  10.6
NCZ    10.3

In: NCZ          Out: CGC, JBH, WEB

9.0-9.9

BEN, JBH, PPT, CGC, WEB, CTD, PLS, BGA

In: JBH, CGC, WEB, PPT, PLS                    Out: NCZ, SUL                     
                                               
8.0-8.9%

NXT, SUL, BOQ, CUV, BKL

In: SUL, BOQ                        Out: PPT, PLS

7.0-7.9%

MYR, HVN, IVC, DMP

Out: BOQ, KGN

6.0-6.9%

BIN, A2M, SGM, NUF, KGN, MYX, RSG, HUB

In: KGN, MYX, RSG                       

5.0-5.9%

SEK, RWC, IFL, CLH, AMP, COE, BUB, FLT, CLQ, CGF, AWC, DCN, GEM

In: AMP, CGF            , GEM             Out: RSG, NEC, MND, CSR           
 

Movers & Shakers

See above.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	0.7	0.6	NCM	0.9	0.8
ANZ	0.6	0.6	RIO	4.7	3.9
BHP	3.8	3.5	SCG	0.3	0.7
BXB	0.2	0.2	SUN	0.8	0.8
CBA	0.6	0.7	TCL	0.4	0.4
CSL	0.1	0.1	TLS	0.4	0.3
GMG	0.2	0.1	WBC	0.6	0.7
IAG	0.8	0.6	WES	0.4	0.6
MQG	0.4	0.3	WOW	0.7	0.5
NAB	0.6	0.6	WPL	1.2	1.0

To see the full Short Report, please go to this link

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.

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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