(Bloomberg) — The group of stocks at the center of a $20-billion block trades selling spree last week were under selling pressure on Monday as investors worried there could be more fallout from forced offerings.
ViacomCBS Inc. fell as much as 7.1% in New York trading after a $2.1 billion block trade was said to price at the top of its range, while Discovery Inc. dropped 4.8%. The American depositary receipts of Chinese companies Tencent Music Entertainment Group, Baidu Inc. and GSX Techedu Inc. extended their declines after cratering Friday following the forced liquidation of positions linked to Bill Hwang’s Archegos Capital Management.
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.
“Nobody has the transparency this is over, so buying in volume would be exposing to a potential ‘death event,’” said John Roe, head of multi-asset funds at Legal & General Investment Management. “Which is why I’d have thought additions will likely be gradual, looking for signs of stability first.”
Nomura and Credit Suisse both tumbled more than 15% each on Monday with lenders still in the process of exiting positions. Deutsche Bank AG, which fell as much as 6.4%, has “significantly de-risked our exposure without incurring any losses,” a spokesman said by email without elaborating.
In the U.S., bank stocks fell with the KBW Bank Index slumping as much as 2.1%. Goldman dropped as much as 3%, even after the investment bank was said to have told shareholders and clients that any losses it faces are likely to be immaterial. Morgan Stanley slumped 5%.
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 U.S. 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.
More Offerings
A block of about 45 million shares in ViacomCBS priced at $47 a share, a person familiar with the matter said on Monday. The trade was launched on Sunday via Morgan Stanley and was struck at a 2.6% discount to Friday’s close of $48.23. The U.S. 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 Ltd. and iQiyi Inc., according to an email to Goldman clients seen by Bloomberg News. Both flipped between gains and losses in early trading Monday.
The U.S. 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 though. After plunging 50% last week, ViacomCBS was upgraded by both Loop Capital Markets and BMO Capital Markets. Tencent Music announced a $1 billion share buyback Monday, sending the stock up 4% after it slumped 34% last week.
“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.”
(Updates share price moves and adds more details throughout.)
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