Former Tiger cub Bill Hwang’s Archegos Capital mauls investment banks, forcing Credit Suisse, Nomura to warn of significant losses as they count the cost of the world’s biggest margin call
- Credit Suisse, Nomura warned of potential losses related to margin calls of unnamed US hedge fund client
- Tiger Asia Management and founder Bill Hwang were banned from securities trading in Hong Kong for four years beginning in 2014
Global investment banks warned of potentially “significant” losses on Monday after a series of margin calls involving the family office of Tiger Asia Management’s founder Bill Hwang Sung-kook sparked a sharp sell-off in several US-listed Chinese technology firms and American media companies last week.
Calls placed to Archegos’ office in New York outside normal business hours on Monday were not returned.
Bloomberg reported on Sunday that Hwang’s family office was behind the trades.
Credit Suisse separately said it had not determined the level of loss, but the amount could be “highly significant and material” to its first-quarter results as it and other banks seek to exit positions related to an unnamed US-based hedge fund defaulting on margin calls last week. The Swiss bank’s shares declined as much as 10.6 per cent in early trading in Switzerland on Monday.
Goldman Sachs told clients that it expects any losses from the unwinding of trades related to Archegos Capital Management to be immaterial, according to a person familiar with the matter. Goldman declined to comment on Monday.
Some tech companies used the sell-off as an opportunity to buy back shares, while a Citi analyst suggested it could represent a buying opportunity for shares of US-listed Chinese tech names, such as Baidu and Vipshop Holdings.
Tencent Music said that it would repurchase US$1 billion of its American depositary shares (ADSs) beginning on Monday, saying the buy-back programme reflects its board of directors’ “confidence in the company’s business outlook and long-term strategy”. The company’s shares declined 1.3 per cent in New York on Friday.
“Investor edginess is likely to remain in the Chinese ADRs as well as the broader Hong Kong tech space,” Mohammed Apabhai, Citigroup’s head of Asia-Pacific trading strategies, said in a client note on Monday. “It is likely that there will be continued pressure as long positions continue to be unwound. With volatility in China ADRs increasing, it is possible there are further margin calls and liquidations yet to come.”
Chinese technology stocks broadly declined in Hong Kong on Monday, but not as sharply as some had feared after Friday’s sell-off in New York.
On Monday, the Hang Seng Technology Index fell 1.9 per cent, while the benchmark Hang Seng Index rose slightly to 28,340.48.
“I believe the shift away from the very highly-valued growth sectors towards a broadening out of market returns is likely to persist as we go through the year ‒ not just in Asia, but also in markets globally,” said Paras Anand, chief investment officer for Asia Pacific at Fidelity International. “This will be quite a new phenomenon for many investors, where we have been very used to value rotations being short and sharp in nature, versus one which could potentially have a reasonable duration to it.”
“It’s a reality check,” said Frances Lun Sheung-nim, CEO of Geo Securities in Hong Kong. “Investors are really looking at the valuations. They’re looking at the earnings. Can you really justify paying 1,000 times PE for stocks like this? Or at least 100 times PE? The answer is obviously not.”