Goldman Sachs and Morgan Stanley’s massive sell-off of nearly $20 billion in stocks on Friday left market bigwigs scratching their heads. What really happened to the stock market this weekend?
RT.com reported Sunday that Goldman Sachs and Morgan Stanley have sold $19 billion worth of shares in Chinese tech and U.S. media companies. Traders are now wondering what caused this unusually large move and whether such action will continue next week.
Bloomberg, citing emails from the investment bank to clients, reported that the first batch of $10.5 billion of shares that Goldman Sachs liquidated in block trades Friday were sold before the market opened Friday, including $6.6 billion worth of shares in Baidu, Tencent Music Entertainment Group and Vipshop Holdings. Later in the day, Goldman Sachs sold another $3.9 billion worth of shares, including shares of U.S. media groups ViacomCBS (ViacomCBS) and Discovery Communications (Discovery), British-Portuguese online luxury fashion retail platform Farfetch, Baidu’s video site iQiyi (iQiyi) and Chinese basic Education tutoring site with who learns (GSX Techedu) shares are also among them.
Morgan Stanley offered two batches of stock selloffs worth $4 billion each on Friday, according to the Financial Times.
The mysterious sell-off totaled $19 billion, resulting in the evaporation of $33 billion in market value of the underlying stocks, according to Bloomberg and the Financial Times.
According to the Wall Street Journal, the sell-off was the “biggest one-day loss in human history” led by hedge fund manager Bill Hwang, which rocked global markets.
The forced unwinding of Bill Hwang’s Archegos Capital positions may have been related to margin calls on highly leveraged positions, as Archegos Capital had significant exposure to Viacom CBS and several Chinese technology stocks, and after Viacom CBS shares began to plummet last Tuesday and Wednesday, Archegos Capital was hit hard and the drop prompted one of Archegos Capital’s brokers, an investment bank, to request a margin call, followed by similar requests from other investment banks. However, Archegos Capital could not get new funds and some of its holdings were forced to close out.
Bill Hwang, who previously managed the Tiger Asia hedge fund, pleaded guilty to wire fraud related to Chinese bank stocks in 2012, and after settling illegal trading charges with U.S. regulators that year, a number of banks banned him from all trading with Hwang globally, and in 2014 Bill Hwang was banned from trading in Hong Kong.
Bill Hwang, a former Hong Kong stock market investment guru, transformed his battle-hardened Tiger Asia Management into Archegos Capital, a Family investment fund that uses a highly leveraged long-short strategy to continue to reap profits in the U.S. stock market.
The Wall Street Journal said there were unconfirmed market rumors on Sunday that Bill Hwang and Li Tao of Tengyue had caused a total of $120 billion in “trouble” this Time, and that several securities firms had not run fast enough and were expected to bear the subsequent losses from the blowout. “Maybe we’ll see a repeat of Lehman soon”.
Hedge funds in Hong Kong and Tokyo said Monday that traders are bracing for a possible further deterrent sell-off in stocks linked to Archegos and other funds when U.S. trading opens Monday.
Bankers in Tokyo familiar with the massive sell-off of Archegos assets described the event as a possible “Lehman moment” that would force multiple lenders to recognize that the leverage provided to the fund has created excessive risk.
Nomura and Credit Suisse were among at least five banks that provided prime brokerage services to Archegos, along with Goldman Sachs, Morgan Stanley and UBS, according to people familiar with the matter.
Nomura Holdings (Nomura), Japan’s largest investment bank, said it could face a total loss of profit in the second half of its fiscal year. Credit Suisse warned that the sell-off could have a “very significant and material” impact on its first-quarter results. Two people close to the bank said it expects losses estimated at between $3 billion and $4 billion. Nomura said in a statement that it was assessing the extent of potential losses, noting that its claims against clients were estimated at about $2 billion. The bank said the figure was based on market prices at the close of U.S. trading on Friday and could rise if asset prices continue to fall.
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