From the Securities Lending Trading Desk

Despite the broader market decline, many stocks in social media sectors have seen their
valuations rally this week. We have also seen strong demand for Xunlei Ltd., as they look to expand their offerings to blockchain products. In Hong Kong, Wynn Macau Ltd shares fell 17% following sexual harassment claims against its chairman Steve Wynn. European market volatility caused increased directional demand for securities lending.

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

Over the past few weeks we have seen brokers looking to gain exposure to the volatile market via the SPDR Bloomberg Barclays High Yield Bond ETF (JNK). JNK, one of the biggest high-yield exchange traded funds, fell to a 52-week low on 2/5 as it realized the steepest outflows relative to their peers of fixed-income exchange-traded funds. According to Bloomberg, “high-yield investors blamed Treasuries’ drop to a four-year low for the move, which follows credit-spread tightening to levels not seen since the financial crisis”. The article went on to quote Neil Sutherland, a portfolio manager at Schroders, who suggests investors are less optimistic on credit products as tailwinds dwindle, including declining mutual-fund inflows, central bank support and generous valuations.

We have seen strong demand for Xunlei Ltd. (XNET), an internet media services company based in China, as they look to expand their offerings to blockchain products.  XNET recently announced plans to launch its blockchain product OneThing Cloud. While blockchain-concept stocks surged last year, many have slumped in January amid concerns about regulation. Leading Chinese exchanges such as Huobi, BTC China and OKCoin all ceased operations in China. The uncertainty around crypto-currency and the focus our regulation are resulting in stock price volatility. As such, XNET has traded between $3.15 in July 2017 and $24.91 in November 2017, and closed at $12.55 on 2/6/18. We anticipate long-term demand for XNET and other stocks with exposure to crypto-currencies such as Riot Blockchain, Eastman Kodak, Advanced Micro Devices and Overstock.com, given the existing concerns and price movements.

Despite the broader market decline, many stocks in social media sectors have seen their valuations rally. Much of this rally comes on the heels of the release of fourth quarter earnings and better than expected results. Among the best performers are Twitter, Inc. (TWTR) – closing at a 52-week high of $30.75 on 2/9, Snap Inc. (SNAP) – closing at a six-month high of $20.75 on 2/7, Facebook, Inc. (FB) closing at a 52-week high of $193.09 on 2/1 and finally Alphabet Inc. (GOOG) closed at a high of $1,175.84 on 1/26. In relative terms, TWTR has blown away their competitors as their share price rallies this year. The most recent gains come as the company reported its first-ever profitable quarter, making $91 million in Q4 2017. It has yet to be seen if these stocks can continue their rally while the broader market declines.

Asia Pacific

China Zhongwang Holdings Ltd. shares declined following media reports that the anonymous critical short seller report released in 2015 was actually written by renowned short seller Muddy Waters. The 2015 report linked China Zhongwang Holdings Ltd founder Liu Zhontian to aluminium stockpiles. In an interview with the Wall Street Journal Carson Block said the short seller wrote the 2015 report in a deliberately disorganized way to hide the author. We saw strong lending demand for China Zhongwang Holdings Ltd. as its share price declined further on the news.

Wynn Macau Ltd shares fell 17% in Hong Kong trading following sexual harassment claims against its chairman Steve Wynn. Wynn Macau Ltd shares climbed 6.8% later in the week after Steve Wynn announced plans to step down, easing concerns the company would have difficulty renewing its Macau business licence. The company was suspended from trading after the initial drop but resumed trading the next day. We saw only limited lending demand for Wynn Macau Ltd following the news.

Europe

UK telecommunication company Talk Talk has renewed short interest. TalkTalk Telecom Group Plc. plunged as it announced plans to sell shares for 200 million pounds ($278 million) to prop up its balance sheet and finance the buildout of fibre to more than 3 million homes and businesses in the U.K. Talk Talk has reached an agreement with Infracapital under which a new independent entity will be created that will be 80% funded by Infracapital, with Talk Talk providing the remaining 80%.

Market volatility caused increased directional demand for securities lending. Frontline fell over 5% at the start of the week with a trading volume that was 30% more than the daily average. The stock was down 10% the previous week and short interest as a percentage of outstanding rising up to 6.6%. In Belgium, Celyad fell the most in two months in Brussels after announcing five out of total 15 cancer patients in dose-ranging, phase-1 study with CAR-T cell product NKG2D failed to get proper dose due to inability to produce sufficient number of T cells using prior manufacturing process.