From the Securities Lending Trading Desk

Solar Energy has been in focus again this week in the US and Asia, with shares falling to their lowest level in three and half years for US based First Solar Inc., and an increase in lending interest for GCL Poly Energy Holdings Ltd in China. Bearish sentiment remains strong for messaging-app, Line Corp. since reporting their third-quarter profits. In the UK, interest in Carillion PLC continues to increase following declining construction and real estate concerns.

Below please find the November 22 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

First Solar Inc., the biggest U.S. solar energy company, was a focus of increased bearish demand after the company announced that it is dropping plans to introduce two new products; shares fell to their lowest level in three and half years. The company is cutting its global workforce by about 27 percent and now expects 2017 sales to fall short of Wall Street estimates. They will now focus on one lower cost, higher efficiency panel, which it plans to introduce in mid-2018. Analysts have been quick to respond with several brokerage firms lowering their price targets. The restructuring is in response to steep price declines and lower demand in China. With First Solar already a heavily shorted name, the additional demand further tightened market supply causing fee levels to tick up for new borrows.

Bearish sentiment remains strong for Line Corp. since they reported third-quarter profits and revenues that missed analyst estimates. The news sent the messaging-app company’s shares down to their lowest level in three months. The company is focusing more on advertising to offset slowing user growth in order to fend off larger messaging rivals like Facebook Inc. and Tencent Holdings Ltd. Line has been a focus of directional demand since going public back in July, when shares skyrocketed 27% in its’ trading debut. Many investors questioned the company’s valuation as it currently has negative earnings. Limited market liquidity along with utilization levels currently at 96%, has kept fee levels elevated.

Asia Pacific

A continued deterioration in market conditions resulted in reduced passenger numbers last month for Asia’s largest international airline. Hong Kong-based Cathay Pacific announced last week that passenger traffic declined in October amid soft demand from the US and other key markets. The trend in reduced volume and lower passenger yields is particularly worrying for Cathay; especially as three of its major Chinese airlines all reported positive operating data during the month. The airline is currently undergoing a strategic review of its entire business as it struggles to counter the rise of Middle Eastern and mainland Chinese rivals who have captured a significant portion of Cathay’s business that had catered for passengers using Hong Kong as a hub for their travels from Asia to Europe and the US. We are witnessing increased securities lending demand for Cathay, whose shares are trading at its lowest in seven years and are the third-worst performer in the Hang Seng Index this year.

Global polysilicon demand is falling due to cuts in global subsidies for solar farm generated electricity. Solar panel installations in China may tumble by 80% in the third quarter of 2016 following the cuts. In response to declining demand, Chinese solar wafer manufacturer GCL Poly Energy Holdings Ltd cut production by 15% and reported a 4.6% drop in sales. The solar sector has been drawn into sharper focus following the election of Donald Trump and a forecast decline in US renewable investment. We saw an increase in lending interest for GCL Poly Energy Holdings Ltd.

Europe

Interest in Carillion PLC continues to increase. The UK builder has become one of the most sought after stocks in the Euro Stoxx 600 to borrow post-Brexit. Declining construction and real estate concerns in the UK are contributing factors to the rise in interest for Carillion. However, some recent contract wins to help support London Overground give the company a positive future. In the near term, funds are still seeking exposure to the UK construction company.

Strong demand continues for Sweden’s SSAB as the share price has rallied, closing at a 52-week high this week. According to Bloomberg, the company, which manufactures sheet and plate steel, trades at 27 times its estimated profit for the coming year and the share price has gained 48 percent in the past 52 weeks. Contributing to the rally was recent news that U.S. anti-dumping duties on imported plates were significantly below expectations and favorable for SSAB. According to reports, SSAB has large exposure to these duties as its US plate-focused and SSAB Americas unit accounts for 20% of revenues.