From the Securities Lending Trading Desk

Consolidation in the international betting and gaming industry is generating securities lending demand in Europe. Meanwhile, the cash and stock merger between Media General and Meredith in the US is driving securities lending demand. In the Far East, demand has been strong for Chinese brokerage stocks amid falling trade volumes, increased state intervention and a more restrictive regulatory environment.

Below please find the September 15 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

Shares of Mobileye fell after short seller Citron Research revealed a position in the name and price target of $25 – roughly 47% lower than Monday’s closing price.  On September 9, Mobileye’s share price fell roughly 8% after Citron said the maker of camera-based driver assistance systems was over-valued by nearly double.  Mobileye has been in focus since early 2015.  The firm’s technology is expected to make a “self-driving car” possible.  In August, Morgan Stanley and Citigroup rated Mobileye “overweight” and “buy,” respectively.  Securities lending demand picked up shortly after Citron disclosed their position.

The cash and stock merger between Media General and Meredith is driving securities lending demand.  Last week there was an uptick in demand for Media General after the firm purchased media conglomerate Meredith.  The union will create the third-largest local broadcaster in the US.  Meredith’s share price quickly fell to a 52-week low on September 8 as investors questioned the merger.  There was immediate interest for both Meredith and Media General, however firm orders were only seen for Media General.

Asia Pacific

Challenging operating conditions lie ahead for Hong Kong retailers as declining visitor numbers from China and a strong dollar dampen sales.  Mainland Chinese visitors to Hong Kong dropped by 9.8% from July last year, despite increased marketing efforts by the local tourism board to lure more visitors to the city.  We continue to witness strong securities lending demand for Chow Tai Fook Jewellery and Sa Sa International, two companies that derive significant revenue from mainland Chinese customers.

Chinese brokerage stocks are tumbling amid falling trade volumes, increased state intervention and a more restrictive regulatory environment.  Hong Kong-listed shares of Citic Securities, Haitong Securities, and China Galaxy Securities, have fallen twice as fast as benchmark indices since the beginning of July.  Investors are selling amid fears that government intervention designed to support the falling Chinese stock market will severely impact the brokerage industry.  We have witnessed broad lending demand across the sector.

Europe

Consolidation in the international betting and gaming industry is generating securities lending demand.  Paddy Power settled the terms of its combination with Betfair Group, agreeing to acquire its competitor for $3.2 billion in a deal that creates the biggest publicly listed online-gaming company.  The deal brings together two of the industry’s fastest-growing businesses at a time when increased regulation and taxation are driving companies to seek efficiencies through mergers.  Last week, GVC Holdings agreed to buy Bwin.Party Digital Entertainment for approximately £1.12 billion pounds.  Strong demand has been seen for both deals, with particularly high fees for GVC, which is somewhat illiquid.

Shorts are heating up demand for base metal mines.  Short sellers have been increasing exposure to metal stocks as weak demand continues to depress commodity prices and force cost reductions. According to Markit, average short interest in metals and mining firms have increased by a third.  Arcelor Mittal South Africa has been among the most sought after EMEA names and demand has skyrocketed after FTSE announced it would be deleted from several indexes.  In Scandinavia, Finland’s Outokumpu and Sweden’s SSAB are demanding higher securities lending fees from brokers.  The desk has seen short covering in Glencore as shares have reacted positively to the firm’s debt restructuring that was announced last week.