Archegos-Linked Stocks Whipsaw with persistent block trade problems

(Bloomberg) – Stocks hit by a spate of block trades on Friday fluctuated between gains and losses as details of a $ 20 billion sell frenzy failed to calm investors’ nerves.

ViacomCBS Inc. fell 3.8% in New York trading as of 9:14 a.m. after a $ 2.1 billion block trade was said to be at the top of its range, while Discovery Inc. was down 0.3%. The American depository receipts of Chinese companies Tencent Music Entertainment Group, Baidu Inc. and GSX Techedu Inc. were also split between advances and declines after crater formation on Friday following the forced liquidation of positions related to Archegos Capital Management by Bill Hwang.

The block trades initiated by Goldman Sachs Group Inc. and Morgan Stanley were triggered after Archegos failed to fulfill the margin calls. Nomura Holdings Inc. and Credit Suisse Group AG suffered potentially “significant” losses and both stocks tumbled. The possibility of additional trades is still looming above the market, while traditional quarter-end volatility can add more volatility to previously soaring stocks.

“Nobody has the transparency that has overcome this, exposing buying volume to a potential ‘death’,” said John Roe, head of multi-asset funds, Legal & General Investment Management. “Because of this, I would have thought that additions would likely be gradual, looking for signs of stability first.”

Nomura and Credit Suisse both fell more than 14% on Monday, with lenders still about to exit positions. Goldman was down 2.1% prior to entering the market, even after the investment bank told shareholders and customers that losses are likely to be negligible.

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In the last of a series of massive deals that began Friday, a block of approximately 45 million shares of ViacomCBS was offered at a price of $ 47 per share, a person familiar with the matter said Monday. Trading started on Sunday via Morgan Stanley and closed at a 2.6% discount on Friday’s close of trading of $ 48.23. The U.S. media giant was also the subject of at least one major block trade on Friday by Goldman Sachs, a person familiar with the matter at the time.

Other stocks involved in block trading on Friday included Farfetch Ltd. and iQiyi Inc., according to an email to Goldman customers who saw Bloomberg News. Both alternated between profits and losses in premarket trading.

Upgrades, buybacks

There are already signs of support for some stocks. After ViacomCBS fell 50% last week, it was upgraded by both Loop Capital Markets and BMO Capital Markets. Tencent Music announced a $ 1 billion share buyback on Monday, bringing the stock up 7.8% prior to going public after falling 34% last week.

“The chaos in share prices caused by this type of liquidation sometimes offers the opportunity to attract good companies at low prices,” said Jian Shi Cortesi, fund manager at GAM Investment Management in Zurich. “So we would look at stocks negatively impacted by such a liquidation to look for such opportunities.”

According to Ulrich Urbahn, Head of Multi-Asset Strategy and Research at Berenberg Bank, the block trades have no impact on the overall market. The Stoxx Europe 600 Index was unchanged as of 1:55 p.m., trading at its highest level in more than a year, while futures contracts on the S&P 500 Index fell 0.6%.

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“The fundamental environment continues to support stocks in the face of positive earnings revisions and falling volatility,” said Urbahn. “If some megatrend companies are getting cheaper now, it should be seen as an opportunity to buy.”

Predictive warnings

Friday’s sell-off came as no surprise to many analysts and traders, who pointed to a surge in some of the stocks that led to the trades. Warnings from strategists at the wild rally are now proving forward-looking.

ViacomCBS and Discovery had tripled in the six months leading up to the recent sell-off, making them two of the top performers on the S&P 500 index. Both stocks posted their biggest declines on Friday after several analyst downgrades and a sale of Viacom company shares last week. Chinese technology stocks rose to record highs last month before falling in recent weeks on a combination of rising interest rates and heightened regulatory scrutiny in China and the US

“This is far from over and definitely not positive for risk-weighted assets,” said Karim Moussalem, Head of Cash Equities at Cantor Fitzgerald Europe, over the phone. “It is time to be very careful and definitely keep money on the side as I think there will be a lot of opportunities and upheavals.”

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