From the Securities Lending Trading Desk

Baozun’s shares bounced back up in January amid rebounds for the Chinese tech sector and the broader market. In Asia, analysts are beginning to see signs the Chinese property market is cooling and homeowners are asking for refunds from developers. In Europe, Italian banks dropped this week as reports emerged that the European Central Bank has told lenders they have to clean up bad debt.

Americas

We saw increased demand for Chinese e-commerce company, Baozun Inc. (BZUN) as the share price rebounded after losing 17.2% in December, marking a good entry point for bearish speculators. The company has seen sharp declines as slowing economic growth and ongoing trade tensions between China and the U.S. weighed on its outlook. In November, shares fell 11% following the news that sales had risen at a much slower pace than the previous year. Baozun’s shares bounced back up in January amid rebounds for the Chinese tech sector and the broader market. However, analysts warn that uncertainty resulting from ongoing trade tensions between China and the U.S., and signs of slowing consumer discretionary spending in China suggest that the company’s shares could continue to see volatile swings in the near term.

Bilibili Inc. (BILI), the Chinese provider of online video platforms and services, remains a directional focus name as the stock price continues to be volatile. Revenue rose 48% in its latest quarter, as monthly active users climbed 25% to 92.7 million among young fans. However, investor concerns persist that the company is too reliant on one game for the majority of their revenue along with a fickle fan base. Bilibili is a bit more prone to big swings in its share price than its nearest competitors because it’s a fairly new stock that became public back in March of 2018. One analyst indicated that investors are likely still trying to figure out this unfamiliar company and stock.

Asia Pacific

Several Hong Kong-listed stocks plunged last week led by Jiayuan International Group Ltd which fell 81% in just a few minutes. Jiayuan International Group Ltd, Sunshine 100 China Holdings Ltd and Rentian Technology Holdings Ltd fell over 75% in a matter of minutes, while at least 10 companies were 20% lower or more by the close. Analysts speculated that Jiayuan International Group Ltd would struggle to pay $350 million in maturing debt amidst a slowdown in the Chinese economy. Analysts are beginning to see signs the Chinese property market is cooling and homeowners are asking for refunds from developers. We saw short term lending interest for Jiayuan International Group Ltd following the share price drop.

One of Japan’s top energy engineering firms is seeking up to 100 billion yen ($917 million) in financial aid as it seeks to improve its dire financial situation. In November last year, Chiyoda Corp announced that it expected a net loss of 105 billion yen ($921 million) for the fiscal year ending in March 2019 due to cost inflation related to several of its liquefied natural gas projects, in particular the Cameron LNG project in Louisiana. The company has approached its major shareholders, including top shareholder Mitsubishi Corp, domestic and foreign competitors and private equity funds for assistance. Chiyoda will aim to raise capital through a new share sale before March 2019 and has chosen J.P. Morgan Securities as a financial adviser. We have seen long term securities lending demand for Chiyoda, which has seen its shares tumble by over 50% since October 2018.

Europe

Italian banks dropped this week as reports emerged that the European Central Bank has told lenders they have to clean up bad debt. While all banks under ECB supervision were supposedly sent advice from the regulator in December, Banca Monte Paschi (BMPS IM) has been the only one so far to disclose its contents, confirming that the ECB highlighted the weaknesses in its capital and profitability, and requested that it increase coverage of soured debt. Securities lending demand has been high as shares dropped 18.5% following emergence of the news. BMPS IM shares in 2018 were down 70% FY as Italian banks faced headwinds of higher bonds yields which increased pressure on the banks funding costs, many of which have significant exposure to sovereign issuance. Securities Lending industry utilization is at 96% of available shares according to Datalend and Short Interest is at 10% of free float.

Premier Oil (PMO LN) falls as much as 14% this week after reports of pending rights offering. The reported capital raise would help fund a potential $1.5 billion purchase in the North Sea after the US oil major Chevron Corp put the assets up for sale. It is understood that PMO LN faces competition from several other parties over the fields, private equity-backed Chrysaor, the Israeli conglomerate Delek and Sir Jim Ratcliffe’s chemicals business, Ineos. The reported sale price of $1.5 billion is twice the market value of PMO which already has a debt mountain of $2.3 billion against its name. Commentators believe its strategy is to consolidate its sprawling portfolio into a more focused region of the North Sea where it receives a large reservoir of tax credits to reduce the debt burden. Short interest has risen from 9% to 17% (MARKIT) in the name since reports were first sighted at the beginning of December.