From the Securities Lending Trading Desk

Amazon’s acquisition of Whole Foods Market has put grocers directly in the spotlight of short sellers in the US as competition and price-slashing become major headwinds for the sector. We are seeing the South Korean shipbuilding sector show signs of recovery on news that two of its largest firms are poised to win one of the industry’s largest orders in recent years.  French publishing firm Vivendi became a name of focus as funds looked for guaranteed untendered stock in the upcoming tender election.

Below please find this week’s 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

Amazon’s acquisition of Whole Foods Market has put grocers directly in the spotlight of short sellers as competition and price-slashing become major headwinds for the sector. According to reports by Markit, “short sellers increased their positions in US grocers by 25% over the last few weeks. This surging tide of negative sentiment buoyed the sector’s average short interest to 3.6% of shares outstanding, the highest in more than two years”. We continue to monitor stocks in the sector for increased demand with a focus on Kroger Sprouts Farmers Market, United Natural Foods, Inc. and Target Corporation

We are seeing fee levels ease for Sanchez Energy Corp (SN) as the shares price tumbles to lows despite reporting minimal impact from Hurricane Harvey. On 8/30, SN fell to a 52-week low of $4.04, prompting short covering as Hedge Funds look to lock in profits on the 71% price drop in 2017. Sanchez is currently focused on development of unconventional oil and natural gas resources in the Eagle Ford Shale in South Texas with nearly 356,000 net acres under management. According to statements by SN, this area of Texas has been largely unaffected by the storm, unlike the Gulf Coast. While SN has been a long term focus of demand we have seen fee levels loosen and tighten over time and we anticipate continued demand for this stock.

Asia Pacific

The South Korean shipbuilding sector has begun to show signs of recovery on news that two of its largest firms are poised to win one of the industry’s largest orders in recent years. Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries are set to win a combined order of $1.5bn from Mediterranean Shipping Company in the latest sign that the prolonged global slump in the shipping sector is showing some signs of abating. Growing recent demand for container ships and oil tankers has proved to be a welcome boost for an industry that has been under pressure as a result of overcapacity since the 2008 financial crisis, which has led to thousands of job losses and the closure of idle docks. We have seen moderate securities lending demand for Hyundai Mipo Dockyard and Samsung Heavy Industries in recent weeks.

China Evergrande Group’s meteoric share price rise continued after the developer reported a 250% profit rise and lower than expected debt levels. China Evergrande Group shares have rallied more than 400% so far this year making the stock the best performer in the MSCI China Index. China Evergrande Groups’ earnings were boosted by a Chinese housing boom in the first half of 2017 and analysts expect earnings to continue to rise as more first half sales are accounted for. We have seen long term lending demand for China Evergrande Group however lending interest has declined as bearish sentiment on the stock eroded

Europe 

Weaker orders send ADVA Optical Networking lower. German optical networking company ADVA dropped as much as 28% last week as it lowered its financial guidance for the current quarter. The firm cited weaker than expected orders and adjusted its revenue guidance from $155 million to $124 million. Analysts highlighted the loss of a key contract in Amazon for the reduction but also highlighted the increase in competition within the data center interconnect space. The desk has seen increased demand for the name.

Havas SA becomes a focus as details of Vivendi’s tender become clear. The French publishing firm became a name of focus last week as funds looked for guaranteed untendered stock in the upcoming tender election. Vivendi have issued a tender offer for EUR 9.25 per share providing a small premium to current market prices. The tender offer is the latest move by French Billionaire Vincent Bollore in reorganizing a number of strategic holdings he has in the telecommunications and media industry. The offer opens to shareholders on the 21st of September.