From the Securities Lending Trading Desk

Oil Jack in Motion

The precipitous decline in brent crude oil and commodities prices has led to increased securities lending demand across both sectors, especially in the US and Asia.  In Europe, Al Noor Hospitals Group’s acquisition of Mediclinic International is generating securities lending demand.

Below please find the January 26 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas

Global securities lending demand has increased for stocks in the energy sector as a result of decreasing brent crude oil prices.  Numerous names in the sector have been pushed to new lows.  In the US, many of these names have been long-term shorts, including Chesapeake Energy and Rex Energy, however, we have seen increased demand for additional names such as Southwestern Energy Company and Atwood Oceanics as the entire sector struggles.  Additionally, Oil ETF short positions surged 300% in the past month, according to Bloomberg.  The news source went on to say “the number of short positions has more than quadrupled since late December, bringing the net long position back to the lowest since mid-2015.

Demand for retail sector names has heated up as sales cool amid a consumer spending slow down.  We are seeing strong demand for stocks including Nordstrom, Lands’ End, and JCPenney Company as their prices fell to new lows.  Analysts speculate that consumers are putting away the money they are saving from extremely low crude at the gas stations rather than spending it on retail and food services.  Despite the recent price declines for these companies, investors will continue to monitor interest and inflation rates, oil prices, and the labor market condition as all are expected to help the sector.

Asia Pacific

The precipitous decline in brent crude oil and commodities prices has led to increased securities lending demand across both sectors.  A series of broker downgrades last week spurred lending demand for several Chinese-based oil producers including Brightoil Petroleum and China Oifield Services on concerns that production cuts and high capital expenditure costs will dent future earnings.  Elsewhere, we continue to witness robust lending demand in the iron ore and steel sectors with companies such as Angang Steel, Fortescue Metals Group & Maanshan Iron & Steel in particular focus.

The share price of Japanese electronics manufacturer Sharp Corp surged last week on media reports of a $5.1 billion takeover bid by Foxconn Technology Group.  In October, Sharp cut its 2015 financial year operating profit forecast by 87.5% to 10 billion yen. The Osaka-based company has booked more than 1.1 trillion yen in losses over the past four financial years as stiffer competition from South Korean and Chinese rivals undercut its business. We have seen strong long-term lending demand for Sharp Corp.

Europe

Al Noor Hospitals Group’s acquisition of Mediclinic International is generating securities lending demand.  The £6.5 million transaction was announced in October.  As the expiration date of the tender approaches, we are seeing strong demand for “take no action” (TNA) stock. At the time of the announcement, this was the second largest deal ever in the medical-hospital industry.

SVG Capital recently announced an accelerated buyback program.  SVG will buy back £50 million at a tender price of £5.65, which is currently priced at a 17% premium. Securities lending demand has been seen for guaranteed TNA stock.