(Bloomberg) -- Stocks hit by a rash of block trades Friday fluctuated between gains and losses as details of a $20 billion selling spree failed to calm investors’ nerves.
ViacomCBS Inc. fell 3.8% as of 9:14 a.m. in New York trading after a $2.1 billion block trade was said to price at the top of its range, while Discovery Inc. eased 0.3%. The American depositary receipts of Chinese companies Tencent Music Entertainment Group, Baidu Inc. and GSX Techedu Inc. were also split between advances and declines after cratering Friday following the forced liquidation of positions linked to Bill Hwang’s Archegos Capital Management.
The block trades initiated by Goldman Sachs Group Inc. and Morgan Stanley were triggered after Archegos failed to meet margin calls, leaving Nomura Holdings Inc. and Credit Suisse Group AG facing potentially “significant” losses and sending shares of both plunging. The possibility of additional trades still looms over the market, while the traditional end-of-quarter volatility may contribute to sharper swings on previously high-flying stocks.
“Nobody has the transparency this is over, so buying in volume would be exposing to a potential ‘death event,’” said John Roe, head of multi-asset funds at Legal & General Investment Management. “Which is why I’d have thought additions will likely be gradual, looking for signs of stability first.”
Nomura and Credit Suisse both tumbled more than 14% on Monday with lenders still in the process of exiting positions. Goldman dropped 2.1% premarket, even after the investment bank was said to have told shareholders and clients that any losses it faces are likely to be immaterial.
In the latest of a series of massive trades that began on Friday, a block of about 45 million shares in ViacomCBS priced at $47 a share, a person familiar with the matter said on Monday. The trade was launched on Sunday via Morgan Stanley and was struck at a 2.6% discount to Friday’s close of $48.23. The U.S. media giant was also the subject of at least one large block trade on Friday through Goldman Sachs, a person familiar with the matter said at the time.
Other stocks involved in Friday’s spree of block trades included Farfetch Ltd. and iQiyi Inc., according to an email to Goldman clients seen by Bloomberg News. Both flipped between gains and losses in premarket trading.
Upgrades, Buyback
Signs of support for some of the stocks are already starting to emerge. After plunging 50% last week, ViacomCBS was upgraded by both Loop Capital Markets and BMO Capital Markets. Tencent Music announced a $1 billion share buyback Monday, sending the stock up 7.8% premarket after it slumped 34% last week.
“Chaos in stock prices triggered by this type of liquidation sometimes create opportunities to pick up good companies at great prices,” said Jian Shi Cortesi, a fund manager at GAM Investment Management in Zurich. “Therefore we would look at stocks which have been negatively impacted by such liquidation to look for such opportunities.”
According to Ulrich Urbahn, head of multi-asset strategy and research at Berenberg Bank, the block trades won’t affect the overall market. The Stoxx Europe 600 Index was flat as of 1:55 p.m., trading at its highest level in more than a year, while futures contracts on the S&P 500 Index were down 0.6%.
“The fundamental backdrop remains still supportive for equities, given positive earnings revisions” and declining volatility, Urbahn said. “If some mega-trend companies become cheaper now it should be viewed as a buying opportunity.”
Prescient Warnings
Friday’s selloff came as no surprise to many analysts and traders, who pointed to a surge in some of the stocks leading up to the trades. Warnings from strategists on the ferocious rally are now proving prescient.
ViacomCBS and Discovery had skyrocketed threefold over the past six months before the recent selloff -- making them two of the best performers on the S&P 500 Index. Both stocks posted their steepest declines on record Friday following multiple analyst downgrades and a corporate share sale from Viacom last week. Chinese tech stocks, meanwhile, had soared to record highs last month before tumbling in recent weeks on a combination of rising interest rates and increased regulatory scrutiny in China and the U.S.
“This is far from over, and it’s definitely not a positive for risk assets,” Karim Moussalem, head of cash equities at Cantor Fitzgerald Europe, said by phone. “It’s time to be very cautious and definitely keep cash on the side as I think there’s going to be lots of opportunities and dislocations.”
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