Archegos-Linked Stocks, Goldman Weighed Down by Big Block Trades

  • Bloomberg
  • Stock Market News
Archegos-Linked Stocks, Goldman Weighed Down by Big Block Trades
Credit: © Reuters.

(Bloomberg) -- The stocks roiled by a series of huge block trades on Friday remained under pressure at the start of a new week as investors mulled whether there may be more to come following a massive $20 billion selling spree.

ViacomCBS (NASDAQ: VIAC ) Inc. fell 1.3% in premarket trading and Discovery (NASDAQ: DISCA ) Inc. edged up 2.2%, while the American depositary receipts of Chinese companies Baidu Inc (NASDAQ: BIDU ). and Tencent Music Entertainment Group (NYSE: TME ) remained within 2% of Friday’s closing levels after the forced liquidation of positions linked to Bill Hwang’s Archegos Capital Management. Those trades wiped out about $35 billion in market value on Friday. Baidu fell 5% in Hong Kong.

The block trades initiated by Goldman Sachs Group Inc (NYSE: GS ). and Morgan Stanley (NYSE: MS ) were triggered after Archegos failed to meet margin calls, leaving Nomura Holdings (NYSE: NMR ) Inc. and Credit Suisse (SIX: CSGN ) Group AG facing potentially “significant” losses and sending their shares 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.”

After plunging 50% last week, including a 27% drop on Friday, ViacomCBS started to find some support among analysts, even as Morgan Stanley was said to be shopping a large block of shares. Both Loop Capital Markets and BMO Capital Markets upgraded their recommendations.

Tencent Music announced a $1 billion share buyback Monday, after the New York-listed firm’s stock slumped 34% last week.

Nomura and Credit Suisse both plunged more than 14% on Monday. Goldman dropped 3.3% in premarket trading, even after the investment bank was said to have told shareholders and clients that any losses it faces from the unwinding of trades by Archegos are likely to be immaterial.

Volume Surge

Trading volume exploded last week. More than 607 million Tencent Music shares were traded, up 541% from the prior week, according to data compiled by Bloomberg. More than 408 million ViacomCBS shares and about 159 million of Discovery changed hands, more than double the week before. Both ViacomCBS and Discovery fell 27% on Friday, continuing a multi-day selloff.

“While the highs of these names aren’t likely to be seen for a while, they have also probably seen their lows for the near-term and can be traded long versus Friday’s lows,” said Jonathan Krinsky, chief market technician at BayCrest Partners, referring to stocks such as Tencent Music, Iqiyi (NASDAQ: IQ ) Inc. and Vipshop (NYSE: VIPS ) Holdings Ltd. that fell at least 30% last week. “The overall volume in these were off the charts and records by a magnitude of three to 10 times.”

Prescient Warnings

Friday’s selloff came as no surprise to some who pointed to the strong surge in some of these 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.

“Between a number of unanswered questions about what exactly happened on Friday, a fund blowing up and crazy volumes in names from Viacom to Discovery, it’s likely that we’ll see some volatility on Monday,” said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ: IBKR ) LLC. “Those single-day, 30% selloffs were crazy. I would be shocked if traders just said ‘Let’s move on.’“

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