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Justadabble

10,366 Posts.

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20/08/24

20:51

Post #: 75292926
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Originally posted by 618: ↑

Given where the total short position is right now and the rate of shortselling tracking to the Sept ASX200 exit, I do think it is increasingly viable that the shorts will cover via the index funds exit. Currently, we know the three large index funds (Vanguard, SS and JPM) collectively holds about 15%. As I'd mentioned before, index funds are passive funds that aim to simply replicate the performance of the underlying index it is tracking. So if and when STX is kicked out of ASX200, those index funds will liquidate their STX positions at whatever prevailing market price is when the index rebalancing takes effect. For the shorters, once the SE2/3 result came through and our price copped the haircut, an ASX200 exit became a near certain bet. Knowing that the index funds will exit at whatever the prevailing market price is on rebalacing date, the shorters know they can cover by bidding into the block trade auction, which is how large stakes are typically transacted. Essentially, the shorters will win by exploring the fact that index funds are designed to mirror the underlying index rather than maximising the return of individual holdings.

If I am right about this, we should see total short position gradually increase over next 3-4 weeks, approaching a maximum of 15% before most of it will be covered on the 3rd Friday of September when I am expecting to see volumes in excess of 300mn in special cross trades. If this does eventuate, I'd expect more rational market to return for STX and an imminent price recovery to occur thereafter.

618

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STX Price at posting: 17.5¢ Sentiment: Hold Disclosure: Held
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