(ATF) Forced block trading sales of around $20 billion of shares including Baidu and Tencent Music have set the scene for volatility this week and a test of whether Asian-listed shares in Chinese firms can recover from slumps in their US-listed stocks.
A series of huge block trades in New York on Friday were linked to investment fund Archegos Capital, according to multiple news reports.
The sales included US-listed shares of Chinese firms Baidu and Tencent Music, which had already been under downward pressure after the Securities and Exchange Commission (SEC) on Wednesday announced that it was moving ahead with enforcement of potential delisting of Chinese firms that fail to comply with US audit requirements for multiple years.
Baidu’s US-listed shares at one point late in the week were down by by 33.5% and Tencent Music’s shares by 48.5% from their closing levels on Tuesday, before the SEC announcement.
Asian-listed shares of Chinese firms such as Alibaba have in the recent past proved relatively resilient compared to their US-listed stocks, which were often less liquid.
But violent price moves in US-listed shares and higher trading volumes will test whether this resilience can continue.
Baidu met an unenthusiastic reponse to its recent $3.1 billion Hong Kong listing and a planned move to launch a Hong Kong listing by Tencent Music may be overshadowed by the recent slump in its US shares. Morgan Stanley, which joined Goldman Sachs in conducting the bulk of the block share sales on Friday, has previously been reported to be the likely lead manager alongside JPMorgan for a planned Hong Kong listing for Tencent Music.
Nasdaq-listed shares for Chinese companies Baidu, Tencent Music, Vipshop and IQIYI all bounced well off their trading lows of the day towards the end of New York trading on Friday, after investment banks led by Goldman Sachs and Morgan Stanley had completed their main block sales of the session.
Trading on Monday will demonstrate whether volatility in stocks affected by the block sales will spread to wider markets - in Asia and the rest of the world - and also whether there are any other forced sales from funds that need to deleverage.
The sales on behalf of Archegos included major US corporates, as well as US-listed Chinese stocks.
Shares in Viacom CBS and Discovery tumbled around 27% each on Friday, for example. Viacom was also downgraded by Wells Fargo on Friday.
Archegos was founded by Bill Hwang, who previously founded and ran Tiger Asia, one of the so called “Tiger cub” hedge funds run by managers who had worked for Julian Robertson’s Tiger Management.
A margin call from its prime brokers reportedly prompted the forced share sales. Archegos is a family office rather than a fund with outside investors but it is not yet clear whether its shares sales are complete, or whether other investors will be forced into comparable unwinding of positions.
A number of banks were involved in the block sales.
An email to clients reported by Bloomberg said Goldman sold $6.6 billion worth of shares of Baidu, Tencent Music and Vipshop Holdings before the US market opened on Friday.
Following this, Goldman sold $3.9 billion worth of shares in Viacom CBS, Discovery, Farfetch, IQIYI Inc and GSX Techedu, according to the report.
Morgan Stanley sold at least two blocks of $4 billion according to other reports, and Deutsche Bank was also involved in the block sales.
Goldman and Morgan Stanley are two of the leading prime brokers to funds.