From the Securities Lending Trading Desk

3D Systems Corp, a full-scale 3D printing and services operation, is up 33% in price since last week, continuing its volatile year and keeping the pressure on lending fees high. One of Singapore’s largest real estate investment trust firms raised S$303 million ($226 million) from a private placement of shares last week. In Europe, output woes and cost performance send Impala Platinum Holdings to new lows.

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

Applied Optoelectronics Inc. (AAOI) is a focus of long term directional demand as headwinds fuel bearish sentiment. This week the manufacturer of advanced optical semiconductor devices reported revenue and EPS estimates that missed expectations. While the share price has rallied more than 48% since falling to a 52-week low back on 3/28, investors question if the rally is warranted and if it will continue. Bears remain concerned that the slowdown in Chinese telecom growth and the cyclical industry demand downturn will likely halt the rally. However, bulls feel differently. They believe demand for hyper-scale data centers from giants such as Facebook and Amazon will continue and offset other concerns. While it is yet to be determined which side is correct, AAOI remains on watch in the SL market.

3D Systems Corp (DDD), a full-scale 3D printing and services operation, is up 33% in price since last week, continuing its volatile year and keeping the pressure on lending fees high. DDD beat expectations back in March and jumped 31% in price before reporting an earnings miss and pro forma loss of $0.03 per share last week. The price receded back to January levels until news was released on Thursday of a new contract with Huntington Ingalls Industries (HII) to use 3D printing on naval vessel parts; the price soared back up. With so much recent volatility, DDD lending demand has skyrocketed.

Asia Pacific

One of Singapore’s largest real estate investment trust firms raised S$303 million ($226 million) from a private placement of shares last week. Keppel DC Reit said it would use the proceeds from the capital raising to purchase a data centre in the area of Jurong, in the western part of Singapore. The city-state of Singapore is currently seeing strong demand from multinational firms for quality data centre space and the purchase of the office space is being seen by Keppel DC Reit as an opportunity to diversify its offering to its clients. We witnessed an increase in securities lending demand following the announcement of the placement, which was heavily subscribed by both new and existing institutional investors.

The South Korean biotechnology sector is braced for a major correction after a remarkable rally in the past year. A research note published late last month by domestic brokerage firm Eugene Investment and Securities cited that the strong returns seen in the past year have been “excessive” and are not necessarily based on strong fundamentals or robust business models. The rally in the South Korean biotech sector, which has risen by +85% in the past year, has been more pronounced as compared to the rise in the Nasdaq biotech Index (+8%). We have seen strong securities lending demand in recent months for prominent companies in this sector such as Celltrion Inc, Naturecell, Samsung Biologics, SillaJen and Viromed, on concerns that the bubble is likely to burst in the near-term.

Europe

M&A news continues to drive interest in UK stocks. There was news this week of a potential deal for Clydesdale Bank (CYBG LN) to takeover Virgin Money (VM LN), a challenger bank backed by billionaire Richard Branson. The banks issued a statement this week confirming an offer from CYBG that values Virgin at 1.6 billion pounds; investors would receive 1.13 shares of CYBG for each Virgin share owned. Clydesdale’s share price originally jumped off the back of the news Tuesday, however it finished the week around the previous Friday’s close of £3.19. Traditionally, arbitrageurs seek to short the acquirer and go long the target on M&A news which the desk has seen this week with borrower interest and open levels rising for Clydesdale.

Output woes and cost performance send Impala Platinum Holdings (IMP SJ) to new lows. News that the world’s second largest producer of platinum, behind Anglo American, cut its production forecast this year by 3% and is taking steps to improve output and cost performance dragged its share price to its weakest level in 19 years. The stock price has dropped by more than 40% this year as investors weigh up glitches in its Rustenburg operations and consider cost ratios which look less than impressive against its peers. A number of analysts have commented that the market may be pricing in a potential profit warning as well as capital raising which would certainly bring further interest from the borrower community.