Opinion & Analysis
When telephones were made of Bakelite, boots were made of nails and the queen was a king, the British battled German aircraft with ack-ack and pluck.
The foes were not evenly matched, but there was a secret weapon in the British armoury - radar. With their new-fangled early warning system the British could get their pluck airborne at the right time and place to take on Luftwaffe bombers swarming across the Channel.
In the Battle of Britain, information was as important as firepower.
The notion was not new, of course. A bloke called Sun Tzu apparently made a similar point more than 2000 years earlier, advising aspiring Chinese generals, that "If you know your enemies and know yourself, you will not be imperilled in 100 battles".
Essentially the same reasoning is behind the efforts professional investors make to know as much as possible about every stock they own.
However, Chalkie reckons potentially useful information is being withheld from investors in New Zealand - and the organisation withholding the information is the stock exchange itself.
From an outfit always harping on about the importance of a well-informed market, this is ironic.
Chalkie's thoughts on the absence of information were triggered by a detail in the NZX half-year report: in the six months to June, stock lending through the NZX's new clearing house rose 63 per cent to $1 billion.
In stock lending, someone lends a chunk of shares to someon else and charges interest for the privilege. The same number of shares must be returned at the end of the loan.
Sometimes stock lending takes place simply to help settle trades, but it is also related to the practice of short-selling.
In short-selling, someone borrows shares and sells them, hoping the price will fall and allow the shares to be bought back more cheaply. The shares can then be returned to the lender and the price difference trousered.
Short is thus the opposite of long - being long is buying a share in the hope its price will rise and you can sell it for more later.
Clearly, someone shorting a stock is taking an opposite view of its prospects from someone, er, longing it.
What's more, a long investor who sells often does so to take profits after a gain, or to switch into a faster-growing stock, or in the expectation that there are no further prospects for capital growth - not because they expect the price to fall significantly.
Hence, the selling behaviour of short and long investors is not the same.
It follows, then, that it might be useful to know when a stock is being sold short.
That, however, is exactly what the NZX doesn't want to tell us.
To be fair, it used to publish monthly short selling reports showing the amount of short sales on certain stocks during the period. Unfortunately, although it was interesting detail, it was useless because it didn't reveal the level of short positions at any time - ie, the short sales that had yet to be closed out by a purchase.
These days the NZX has switched from providing useless information to providing none at all.
But maybe so little short-selling goes on that it doesn't matter.
Maybe, but Chalkie doubts it. For one thing, the big jump in stock lending indicated by NZX figures seems unlikely to stem just from standard settlement activity.
Publicly available figures for the last five months show big increases in each month except June. The most stock loaned through the NZX clearing facility was in May, at $284 million, up 114 per cent on a year earlier.
It could be coincidence, but the NZX50 stumbled that month, easing about 3.5 per cent after a strong run since January.
It's also worth bearing in mind that stock lending through the NZX is only a part of the stock lending going on.
But regardless of how the loan is arranged, all short sales must be flagged as such to the NZX, so the exchange knows how much stock lending goes through its own clearing house and it knows every short sale going through the market.
But it won't tell. During the last two weeks Chalkie has repeatedly asked for up-to-date short-selling figures, as well as historical data, only to be repeatedly fobbed off.
Across the Ditch you don't even have to ask. The Australian Securities & Investments Commission publishes data on the size of short positions on every listed company, daily.
A spokesman told Chalkie it does this "to maintain an orderly market and mitigate the risk of market abuse".
"Also, the reporting system was introduced to enhance confidence and integrity in the market by providing greater transparency."
As a result, Australian investors know listed retailer JB HiFi is the most shorted stock on the market.
According to ASIC data, 21 per cent of JB HiFi's shares have been sold short. That's not a percentage of its shares traded, but a percentage of its entire share issue.
The short sellers appear to see JB HiFi as vulnerable to online competition.
In a Reuters report on the level of shorting, Tribeca portfolio manager Sean Fenton said: "A lot of the shorts are from offshore and they look at comparable retailers in the US that have been under structural threat from the internet and draw a line from the US experience."
The short sellers could be wrong and do their dough, but if you were thinking about buying into JB HiFi, it's useful to know there are some big bears out there.
In the spirit of disclosure, Chalkie should also note the third most shorted stock on the ASX is Fairfax Media, publisher of this column, with 11 per cent of its shares sold short.
The second most shorted is Flight Centre, with 13 per cent.
Pshaw, you might say. We don't need to know about that stuff on this side of the Tasman. Our companies aren't the target of short-sale speculation.
Well, think again.
Some stocks are dual listed in New Zealand and included in the Asic figures. For the most part they don't seem much affected, although there is a bit of activity in Fletcher Building, with about 1.5 per cent of its stock sold short.
There also appears some potential hedging of bets on Fisher & Paykel Appliances, as a small short position has emerged mid-month.
However, one stock is clearly being picked on - coal miner Bathurst Resources.
Asic data shows a significant short position of 6.4 per cent on Bathurst and the number has been gaining steadily all month.
Bathurst optimistically raised about $75m in May last year as it pursued plans to develop coking coal resources near Greymouth, but its stock has been pummelled in recent months.
From $1.10 in March this year its shares are down to about 50 cents and could go lower.
As well as falling coal prices, Bathurst has faced major delays as environmental groups challenged its resource consents.
In January, Bathurst was still talking about starting production from its Escarpment project during the year, but that's looking doubtful, as it still has a crucial Environment Court appeal hearing late next month.
A related case over whether climate change should be a relevant factor in resource consents is headed for the Court of Appeal, after Bathurst's position was upheld by the Environment Court and the High Court.
With all that going on, does the knowledge of big short positions make any difference?
It depends on your interest in Bathurst, of course, but Chalkie reckons it's worth a blip on the radar.
It would be nice if the NZX could turn on the screen covering the rest of our market.
- Chalkie is written by Fairfax Business Bureau deputy editor Tim Hunter.
- © Fairfax NZ News
Has Home and Away jumped the shark? (spoiler)