From the Securities Lending Trading Desk

Construction site

This week, shares in Chinese property developer Sunac China Holdings Ltd fell, following media reports that China could deepen reforms.  Throughout 2017, the Internet industry has been a major focus of US demand, specifically the internet content-entertainment subgroup, with familiar names in focus.  Meanwhile in Europe, France’s Altran Technologies agreed to buy US Aricient Inc in a $2 billion cash deal.

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 

The Internet industry has been a major focus of demand this year, specifically the internet content-entertainment subgroup, with familiar names in focus. SNAP, which went public in March, has been the top earning stock for fundamental demand in 2017 due to concerns around slowing growth and dwindling advertising revenue. Weibo (WB), a Chinese company described as a combination of Facebook (FB) and Twitter (TWTR), has been in focus as the company has exposure to the unpredictability of regulation and information censorship of the Chinese government. Limited competitors in the current environment, strong user growth, and risks of changes to current regulations are driving fundamental demand, in spite of the company’s seemingly solid financials. With 2017 coming to a close, it seems almost a certainty that this name will continue to be in focus into 2018.

TherapeuticsMD (TXMD) has been a strong focus of directional demand amid price volatility often seen in stocks in the specialty pharma-biotech sector, given their valuations can be greatly affected by news and FDA decisions. Recently, TXMD announced they are resubmitting the New Drug Application (NDA) for its TX-004 asset to the FDA. Once this takes place, investors will be focused on whether the FDA sets a review for two or six months. Earlier this year, the share price had a significant decline after Lakewood Capital’s Anthony Bozza announced a short position in the name. While some analysts predict TXMD will soon start realizing positive revenues on TX-004, many investors remain bearish on the stock due to the fact that the drug development and marketing processes are so difficult and uncertain.

Asia Pacific 

Shares in Chinese property developer Sunac China Holdings Ltd fell, following media reports that China could deepen reforms. Chinese property stocks broadly fell after Xinhua News Agency published a report saying China could deepen regulatory reforms to curb property speculation. Sunac China Holdings shares were among the worst performers following a surge in short interest. We saw a strong uptick in lending demand for Sunac China Holdings.

Sharp Corp shares continued their turnaround after the Tokyo Stock Exchange announced the stock will be moved back to the First Section of the exchange. Buying demand for Sharp Corp surged on news of the move which is due to take place on December 7. Sharp Corp’s return to the First Section follows a 35% share price gain since January and a 116% gain last year after Foxconn Technology Group took a controlling stake. We have witnessed a moderate increase in securities lending interest for Sharp Corp.

Europe 

France’s Altran Technologies agrees to buy US Aricient Inc in a $2 billion cash deal. The resulting deal will create the world’s largest provider of engineering, research, and development services with close to EUR 3 billion of annual sales. The deal raised demand from the borrower community as news surfaced that Altran will be issuing a EUR 750 million rights issue to partly fund the deal. Details of the rights issue have not been announced, but reports suggest the deal and capital raising will take place in Q1.

Ocado rises off the back of Casino deal. Last week the online grocer announced a deal to provide its technology to a major international supermarket chain causing its share price to increase more than 21%. The latest announcement would have been painful for short sellers to stomach, given it is one of the most shorted stocks on the LSE. Recent years have seen pressure from the likes of Amazon in the online grocery space, while Ocado also has no confirmed sales of its technology services. This week’s deal could highlight a turnaround for the firm leaving many funds potentially questioning their short conviction on the British based grocer.