New York: The group of stocks at the center of a $20 billion block-trade selling spree last week were under pressure on Monday as investors worried there could be more fallout from forced offerings.
ViacomCBS Inc. fell 6.7 per cent in New York trading after a $2.1 billion block trade that launched on Sunday was said to price at the top of its range, while Discovery Inc. slipped 1.6 per cent. The American depositary receipts of Chinese companies Baidu Inc. and GSX Techedu Inc. extended their declines following the forced liquidation of positions linked to Bill Hwang's Archegos Capital Management, while Tencent Music Entertainment Group eked out a 1.2 per cent gain.
The wave of block trades continued Monday as a large stake of about 20 million shares of Rocket Cos Inc. was said to have been sold Monday via Morgan Stanley. Shares of the home-loan provider closed 0.5 per cent lower. Wells Fargo & Co. was said to have executed on four block trades valued at a combined $2 billion on Monday on ViacomCBS, Baidu, Farfetch Ltd. and Vipshop Holdings Ltd.
There could be more
The block trades initiated by Goldman Sachs Group Inc. and Morgan Stanley were triggered after Archegos failed to meet margin calls, leaving Nomura Holdings Inc. and Credit Suisse Group AG facing potentially "significant" losses and sending shares of both plunging. The possibility of additional trades still looms over the market, while the traditional end-of-quarter volatility may contribute to sharper swings on previously high-flying stocks.
The margin call will force every prime brokerage to review their books, said Edward Moya, senior market analyst at Oanda Corp. "When you look at the stocks that were incorrectly bet on, Wall Street must ponder if the V-shaped stock market recovery got out of hand."
Nomura and Credit Suisse both tumbled more than 13 per cent each on their home bourses Monday, with lenders still in the process of exiting positions. Deutsche Bank AG, which fell 3.3 per cent, has "significantly de-risked our exposure without incurring any losses," a spokesman said by email without elaborating.
In the US, bank stocks fell as the KBW Bank Index lost 2.3 per cent, the most in a month. Goldman slipped 0.5 per cent, even after the investment bank was said to have told shareholders and clients that the margin call will likely have an immaterial impact on its financial results. Morgan Stanley sank 2.6 per cent.
Small ripples of the forced unwind were felt in credit markets. Nomura had to take the rare step of canceling a bond deal that had already priced after its loss warning. The investment grade credit default swaps index - a gauge of US credit fear - was relatively calm, even though traders are demanding a higher cost to hedge against losses on the debt of banks that have been caught up in the Archegos situation, including Nomura and Credit Suisse.
At a discount
A block of about 45 million shares in ViacomCBS priced at $47 a share. The trade was launched on Sunday via Morgan Stanley and was struck at a 2.6 per cent discount to Friday's close of $48.23. The US media giant was also the subject of at least one large block trade on Friday through Goldman Sachs.
Other stocks involved in Friday's spree of block trades included Farfetch and Iqiyi Inc., according to an email to Goldman clients seen by Bloomberg News. Both slumped after whipsawing in early trading Monday.
The US Securities and Exchange Commission has been monitoring the forced liquidation in holdings linked to Archegos, a spokesperson said.
Upgrades, buyback
Signs of support for some of the stocks are already starting to emerge. After plunging 50 per cent last week, ViacomCBS was upgraded by both Loop Capital Markets and BMO Capital Markets. Tencent Music announced a $1 billion share buyback Monday.
"Chaos in stock prices triggered by this type of liquidation sometimes create opportunities to pick up good companies at great prices," said Jian Shi Cortesi, a fund manager at GAM Investment Management in Zurich. "Therefore we would look at stocks which have been negatively impacted by such liquidation to look for such opportunities."
According to Ulrich Urbahn, head of multi-asset strategy and research at Berenberg Bank, the block trades won't affect the overall market. "The fundamental backdrop remains still supportive for equities, given positive earnings revisions" and declining volatility, Urbahn said. "If some mega-trend companies become cheaper now it should be viewed as a buying opportunity."
Oanda's Moya expects to see more volatility. "A US-based hedge fund defaulted on margin calls and while the reopening of the economy trade will continue, the path higher for US stocks will be complicated and filled with fresh risks," he said.
