From the Securities Lending Trading Desk

This week, as the stock rallies, new China IPO iQiyi (IQ) has become a focus of recent demand. Asian stocks with exposure to digital currencies fell sharply in trading last week after yet another cyber-hack. In Europe, construction sector short interest is trending upward.

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

As the stock rallies, new China IPO iQiyi (IQ) has become a focus of recent demand.  IQ, China’s version of Netflix, went public back in March and the share price has rallied from the IPO price of $18.00 to a high of $44.20 this week. We began to see increased demand as the share price dipped below its 10-day moving average for the first time since starting its breakout. Despite the gains, IQ has plenty of naysayers suggesting these gains are not warranted or sustainable. Concerns surround tech stocks, specifically Chinese stocks, amid an intensely competitive environment which includes Alibaba Holdings Ltd (BABA) and Tencent Holding/ADR (TCEHY). However, bulls are focused on iQiyi’s strengths including revenue and user growth and demand for their premium content. IQ’s rally has given a bump to other Chinese ADRs including Sogou (SOGO) and HUYA Inc. (HUYA) which have also been frequent targets over the past week.

A 36% rally in June has placed Discovery, Inc. (DISCA) in the limelight this week.  Much of the rally comes as investors were bullish on media stocks and optimistic about consolidation after the AT&T and Time Warner merger gained approval. While DISCA’s trading volumes surged last week and stock loan locates spiked this week, trading in options of DISCA was also extremely active by as much as 5 times the 20-day average on 6/20. Discovery’s portfolio of premium brands includes Discovery Channel, HGTV, Food Network, and TLC. DISCA is among the S&P 500’s best performing media stocks. While a slew of recent corrective downgrades may have sparked some bearish sentiment, bulls appear firm in their support of the non-fiction entertainment company.

Asia Pacific

A scathing report by a little-known research company has sent shares in an Australian financial services group sharply lower. Checkmate Research published a negative report last week about Australian debt buying and lending company Credit Corp Group questioning a number of facets of the firm including its earnings history, internal control systems, and whether the company is actually a payday lender. Their report further alleges that Credit Corp’s business is not what it is purported to be and that they are relying on a “loophole in legislation” to avoid being classified as a payday lender, which in turn would require separate controls to be implemented. We saw increased securities lending demand for shares of Credit Corp after the publication of the report, which fell sharply by nearly 7% in trading last Friday.

Asian stocks with exposure to digital currencies fell sharply in trading last week after yet another cyber-hack. South Korean cryptocurrency exchange Coinrail said a cyber intrusion in its system resulted in digital currency being stolen by hackers without quantifying the value of the potential loss. Another Korean exchange, Bithumb, confirmed last week that 35 billion Won ($32 million) worth of crypto coins were also stolen prompting them to halt cryptocurrency deposits and withdrawal services. We saw strong securities lending demand for South Korean communications equipment manufacturer Vidente Co., which has significant exposure to digital currencies, as its shares fell sharply post-hack before recovering some of its losses on Friday last week.

Europe

European construction sector short interest is trending upward.  European home builders, infrastructure, and commercial construction companies are among this week’s biggest gainers in lending fees and utilization. Several factors have contributed; rising rates are slowing new home sales and building permits, steel tariffs are driving up prices, and slower demand due to higher carry add to the increased costs. Several of this week’s top names in the sector include Salini Impreglilo, Boskalis Westminster and Sacyr.

Gloomy outlook for UK retailer, Debenhams. Securities lending demand continues for Debenhams after they announced another profit warning. Business in May and early June has been below plan, the retailer said on Tuesday, prompting analysts to question whether the turnaround strategy and dividend is intact. The company also moved to reduce spending on its turnaround efforts and said it’s reviewing non-core assets.