Hedge Fund Liquidation Hits Banks | Qantas

2 April 2021

Global markets were little changed overnight (S&P 500 index -0.1%) as Wall Street ended the session almost flat.

Investors evaluated the level of ripple effect from a forced block trade for financial markets, with bank shares falling sharply amid warnings of potential losses from a hedge fund’s default on margin calls. Nomura and Credit Suisse are facing billions of dollars in losses after a US hedge fund, named by sources as Archegos Capital, defaulted on margin calls forcing a massive spree  of $20 billion of block sale trades on Friday. Selling was focusses on the Chinese tech giants and US media firms – putting investors on edge about who else might have been caught out. So far it appears the situation has been well contained, with many banks reducing their exposure to the hedge fund and that there is no concern that this could trigger a wider systemic event for markets.

Elsewhere, Boeing was up +3% on news that Southwest Airlines had added 100 orders for the airliners 737 Max jet. The first 30 jets are scheduled for delivery in 2022. Optimism over the economy and life post COVID vaccine roll-outs limited the day’s declines.

Qantas Airways (QAN:ASX)

Qantas shares were lower yesterday as a snap three-day lockdown in Brisbane was implemented n response to 10 new cases of COVID-19, four of which are from community transmission and continue to disrupt recovery in travel stocks. It has been a tough period for Qantas, which lost $1 billion in the first half of their 2021 financial year (6 months ending December 2020). The road to recovery appears turbulent for the Airlines given they are expected to continue to operate at a loss even with a trans-tasman bubble, and likely require international travel to return to profitability. 

We continue to remain HOLD rated on Qantas at its current valuation. As touched on yesterday, we prefer Auckland Airport or Sydney Airport as tourism recovery plays as they are better suited to benefit from partial recovery – and are avoiding heavy losses in the interim unlike their airline counterparts.


Australia & New Zealand Market Movers

The Australian market (ASX 200 index +0.4%) fell yesterday giving up early gains after the Queensland government announced a a three-day snap lock down to combat a growing covid-19 clusters in the state, as well as intensifying selling in US stocks through the futures derivatives market due to the large block selling prompting by the margin calls.

Most sectors were lower, but the major contributor being tech sector hit the hardest,  with Xero falling almost -3%, Zip falling -4.5% and Megaport was down -6%. 

The miners were up providing some support for the market, while other major sectors were in the red.

Treasury wines fell -1.4%, after Chinese authorities released the final tariff on imports from the wine merchant, imposing a duty rate of 175.6% shall be applied to Treasury Wine’s Australian country of origin wine in containers of two litres or less imported into China.

The New Zealand market rose on Monday (NZX 50 index +0.2%) helped by gains in renewable energy companies. Meridian Energy climbed 3.4% and Contact Energy rose 1.5% both buoyed by buying from a Blackrock clean energy index which rose 2% overnight.

Travel booking software company Serko led the market, climbing 3.6% as booking volumes start to recover and a deal with a European travel giant moved forward.

Precinct Properties shares rose 2.7% after announcing it would buy its management contract back for $215m and manage its portfolio itself – providing $14.6m in cost savings per year.

Synlait Milk saw the day’s biggest losses, falling 5.9% to a four-year low, after reporting a -76% drop in net profit for the six months ended January 2021 and warned there was more uncertainty to come  – declining to give forward guidance that the company would “broadly break even” in the full year. This is clearly not a good sign for A2 Milk either. 

3 Things Markets will be Watching this Week

  1. The pandemic will remain in focus, as rising case numbers have caused concern among investors. Further restrictions have been imposed in recent days, with the German lockdown extended until April 18 and French restrictions extended to more regions of the country. In contrast, the UK (which has vaccinated 47% of the population) will begin easing restrictions on Monday.
  2. US employment data – Nonfarm payrolls is released on Friday and the market is looking for a ~650k gain in employment in March and a 0.2% fall in the unemployment rate, to 6%. 
  3. Domestically, the final release of the ANZ Business Survey comes out on Wednesday, while Synlait and NZ King Salmon are both scheduled to report 1st half earnings.


Investors evaluated the level of ripple effect from a forced block trade for financial markets, with bank shares falling sharply amid warnings of potential losses from a hedge fund’s default on margin calls.

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