From the Securities Lending Trading Desk

new plane

We are seeing an uptick in demand for Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) following MSCI’s decision not to include A shares in its global benchmark indexes. Borrowers are also seeking shares of Korean shipbuilders as they continue to look for opportunities to increase scale as a means of reducing cost and raising capacity amid a global trade downturn.

Below please find the January 24 edition of From the Trading Desk, which provides timely commentary about top earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas 

We are seeing an uptick in demand for Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) following MSCI’s decision not to include A shares in its global benchmark indexes. ASHR seeks to track the performance of the CSI 300 Index and offers US investors direct access to Chinese A-Shares which are listed on the Shenzhen and Shanghai Stock Exchanges. Some investors remain bearish on these stocks believing they are “some of the world’s worst-performing stocks as China’s gross domestic product expands at the slowest pace in 25 years and bond defaults escalate,” according to Bloomberg. We expect ETFs in general to remain in demand, specifically ASHR.

Fee levels are spiking for Weight Watchers International (WTW) as the share price trends lower from a six-month high. Over the past few years, we have seen a pattern of increased demand for WTW in the new year as many people look to eat healthier and focus on weight loss. The first six weeks of each year are vital to companies in the weight-loss industry. Another challenge for WTW is the increase in competition from free diet and activity tracking apps and fitness wearables.

Asia Pacific 

Asia’s largest international airline announced details of its much awaited strategic review last week as it looks to transform its business in the face of intensifying competition from mainland Chinese and Middle Eastern Airlines. Hong Kong-based Cathay Pacific said it would make changes to its workforce including cutting jobs, redeploying staff to new roles that are better aligned with the company’s new direction and seek greater synergies by allocating more short-haul routes to Cathay Dragon, its sister airline that is focused on regional destinations. It also said it will adjust its much maligned fuel hedging strategy, which resulted in significant losses for the airline last year, by shortening the hedging period to two from four years. We continue to witness securities lending demand for Cathay Pacific whose shares are trading at its lowest in seven years.

Korean shipbuilders continue to look for opportunities to increase scale as a means of reducing cost and raising capacity amid a global trade downturn. According to media reports, China Cosco Shipping Corp explored the possibility of buying Hong Kong’s biggest container shipping company, Orient Overseas Container Line Ltd. If successful, the deal will create the world’s largest shipping company. To deal with further declines in global trade, shippers are being forced to consolidate to reduce costs. We have seen strong lending demand for Cosco Shipping Corp.

Europe 

Demand has been strong for French commercial service provider ELIS SA. On Wednesday, ELISA SA announced plans to increase its share capital by issuing preferential subscription rights in order to raise EU325 million in a move that will help refinance the recently acquired Indusal and Lavebras. The company will be issuing five new shares per existing twenty two owned at a subscription price of EU12.55. Clients lending these stocks can potentially benefit from the spread that arises between the ordinary shares and the new prevailing issued shares; the issue also has potential for over subscription option to enhance earnings.

Safran has managed to get a seat among the biggest aerospace suppliers. The aircraft engine maker Safran announced this week they had agreed to buy plane seat provider Zodiac Aerospace SA for just under 10 billion euros. Safran has offered 29.47 euros per share in cash. If half of Zodiac’s shares are tendered, Safran will finish the transaction through a share swap. The completion of the deal will mean that Safran becomes the third largest aerospace provider in the world.