From the Securities Lending Trading Desk

Solar Panels

Chinese polysilicon producers remain under pressure amid falling prices and soft demand.  Meanwhile in Europe, strong demand has materialized for Ferrari following its spin-off deal from Fiat.  Finally, with earnings season for the North American packaged-food industry kicking off this week, we are seeing an uptick in demand for many of the names in this grouping.

Below please find the January 12 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

Mannkind’s shareprice has declined on bankruptcy concerns after Sanofi put an end to their strategic partnership with the firm.  According to a statement from Sanofi regarding Mannkind’s inhaled insulin product, “The product never met even modest expectations and we do not project Afrezza reaching even the lowest patient levels anticipated.”  They went on to describe long term costs associated with the relationship which ultimately ended their collaboration. In August 2014, Sanofi paid $150 million for the rights to sell Afrezza globally shortly after the drug won FDA approval.  From a lending standpoint, Mannkind has been a long term focus of fundamental interest.

With earnings season for the North American packaged-food industry kicking off this week, we are seeing an uptick in demand for many of the names in this grouping.  Long term focus names include Cal-Maine Foods, Pilgrim’s Pride Corporation, Sanderson Farms and Amplify Snack Brands — which have all heated up in the past week.  The group is greatly impacted by the strong US dollar versus major currencies and the downstream effects this can have on non-US sales.  Both Pilgrim’s Pride and Sanderson Farms, which deal with chicken products, are expected to benefit from lower commodity costs and initiatives to reduce costs, however there are concerns that this may not be enough to offset lower market prices for their chicken products.  Cal-Maine’s declining share price and negative earnings estimate revisions for the current quarter and year have resulted in higher securities lending fee levels.

Asia Pacific

China Vanke Co Ltd shares resumed trading and fell sharply in Hong Kong following their suspension in December amid a battle for control with the company’s largest shareholder.  The property developer halted trading in Hong Kong and Shenzhen on December 18 after announcing a share sale which investors speculated was intended to dilute the holding of its largest shareholder, Baoneng Group.  Vanke’s management has questioned Baoneng’s credibility and labelled the move a “hostile takeover.”  We have seen lending interest in China Vanke Co Ltd due to the dilution effect of the intended sale.

Chinese polysilicon producers remain under pressure amid falling prices and soft demand.  Solar module polysilicon prices have fallen to lows last seen in 2009 as a result of reduced demand and overcapacity in the industry.  The continued weakening of the Chinese yuan has also further dented earnings for key producers.  We have witnessed increased securities lending demand for GCL-Poly Energy Holdings Ltd and Xinyi Solar Holdings Limited in recent weeks.

Europe

Demand has increased for Swiss watch maker Swatch following a decline in gold prices and growth concerns out of Asia.  Swatch exports a large proportion of watches to Asia.  The weakening yuan has made imports more expensive and, with recent economic data out of Asia pointing to a slowdown, the stock price has fallen nearly 10% this week.  Demand for Swatch is likely to continue well into 2016 which is supported by negative expectations for the price of gold.

Strong demand has materialized for Ferrari following its spin-off deal from Fiat.  There is currently a brief window of opportunity for elevated fees in Ferrari due to a short term liquidity trap created by the spin-off deal. Once the corporate action has been fully processed, fully liquidity will return to the market.  Short interest has been seen following a fifth straight year of expansion from rival McLaren.