Anynegative market impact resulting from the liftingof the ban on restricted shortselling (RSS) on 1 Jan 2021 will likely to be muted in our view. Only ninenames out of a list of 46 stocks with Total Net Short Positions of 0.1% and above (of outstanding shares of the issuer) are FBMKLCI components, out of which, perhaps not surprisingly, three are glovemakers (TOPGLOV, SUPERMX and HARTA).The lifting comes with tighter new measures -capping the net short position at 4% and reducing the daily gross short position limit from 3% to 2% -that may lessen volatility of potential short selling transactions. With the FBMKLCI slightly overvalued at 1,681 points, up 6% YTD and over38% from the March bottom, thelifting of the ban is probably timely and welcomed.

Regulated Short Selling to be lifted 1 Jan 2021: The SC and Bursa announced yesterday that the temporary suspension of Regulated Short Selling (RSS) scheduled to expire on 31 Dec 2020, will be uplifted on 1 Jan 2021. Meanwhile, the suspension on Intraday Short Selling (IDSS) and intraday short selling by Proprietary Day Traders (PDT) due to expire 31 Dec 2020 will be extended to 28 Feb 2021.

A measured lifting: The RSS will be re-introduced with the following enhanced control measures:

i) The daily gross short position limit for Approved Securities will be reduced from 3% to 2%; and

ii) A new cap of 4% on RSS aggregated net short position will be introduced.

Restrictions of IDSS and PDT if lifted end February may have bigger impact:As highlighted in Lum Joe Shen’s note of 15June 2020 titled “Should We Fear the Return of Short Sellers”, one of the key points to note is that most short selling trade volumes are generated from IDSS and PDT. RSS and PSS (Permitted Short Selling) volumes are far less. Hence, the impact may be muted as IDSS and PDT (which typically generate higher short volumes compared to RSS and PSS) suspensions are still in place.Even with RSS allowed, the new control measures would lessen the volumes that are shortable as daily gross short position limit is reduced from 3% to 2% while the aggregate net short positions are capped at 4%. We believe these measures together will blunt the short selling impact.

Glovemakers among those with highest outstanding net short positions: We list overleaf, the latest RSS aggregated net short positions taken from Bursa’s website as at the close of 15 Dec 2020. The top four names with the highest precentage total outstanding net short positions are, not surprisingly glovemakers namely TOPGLOV (1.27%), SUPERMX (1.23%), KOSSAN (1.15%) and HARTA (0.97%).Given the 4% limit imposed, the amount that remains shortable for each name are thus 2.73%, 2.77%, 2.85% and 3.03%,respectively. In terms of total shortable volumes/average daily trade volumes, these figures translate to 3.50x, 2.58x, 6.77x and 13.38x,respectively, which are among the lowest in the list of 46 names. Stocks exhibiting far higher multiples (thus deemed perhaps more vulnerable) are MAXIS (133x), POS (187.9x) and DIGI(91.7x). These trends hold generally true as well whenviewed in terms of total shortable volumes/free float.

Latest measures are timely and welcome: Given the strong rally in the month-to-date (FBMKLCI up 7.6% resoundingly outperforming the rest of Asean), the reintroduction of the RSS is probably timely if only to temper the emerging animal spirits and make this recovery more sustainable. We remain positive on this market with an 2021 year-end target of 1,803 points.

Source: Kenanga Research - 17 Dec 2020