Tuesday, 8 September 2020

 

SoftBank Selloff Hits $17 Billion After Tech Exposure Fear Grows

Updated on 
  • The Japanese company has shed 14% of value since Monday
  • Investors are grappling with the recent market turbulence

SoftBank Group Corp. slid as much as 7.1% Wednesday, taking losses to about 14% this week after the Japanese conglomerate made substantial bets on equity derivatives in tech stocks before a broad sector selloff.

The Japanese company touched a low of 5,432 yen in Tokyo morning trade. It has shed roughly $17 billion of market value since Monday as SoftBank’s big bets on high-flying tech stocks from Amazon.com Inc. to Alphabet Inc. spooked investors.

Investors are grappling with recent market turbulence, assessing whether the pullback for equities is a sign of market health or the start of a larger drawdown that has further to go. Tesla Inc., which had defied gravity and market watchers for much of the year, was the worst performer on the Nasdaq 100 Index Tuesday, which fell 4.8% amid a selloff in equities. SoftBank has said it held $122.9 million worth of the automaker as of June 30.

“Even more than SoftBank’s actual exposure, it’s the very act that’s disconcerting,” said Justin Tang, head of Asian research at United First Partners in Singapore. “Investors are very wary about ‘style drift.’ The question becomes ‘what are we investing in when we buy SoftBank? And is SoftBank a better investor than we are?’”

SoftBank held stakes in 25 of the world’s largest technology companies worth about $3.9 billion as of June 30, according to a filing to the U.S. Securities and Exchange Commission dated Aug. 17. The portfolio included $1.04 billion of Amazon stock, its biggest investment, a $475 million stake in Alphabet, $248.6 million of Adobe Inc. and $189 million of Netflix Inc.

The Tokyo-based company booked a 65.4 billion yen ($617 million) gain on the sale of some of the holdings, it said in a presentation to investors on Aug. 12. SoftBank said it invested more than 1 trillion yen in “highly liquid listed shares” and sold 564.9 billion yen, all in the same quarter. The report made no mention of derivatives tied to those investments.

SoftBank disclosed in August that it was establishing an asset management arm to trade public securities and said it could use derivatives. What has alarmed shareholders is that Son appears to be using options to amplify his exposure amid rising concerns over valuations being inflated by mercurial individual investors.

The Financial Times reported that SoftBank spent about $4 billion on options focused on tech stocks with an overall exposure of about $30 billion. The company is sitting on paper profits of about $4 billion in gains from those stakes, the newspaper said, citing people familiar with the matter.

The speculative fever that drove bullish bets in options markets and saw shares in bankrupt companies surge broke in September, wiping out trillions in market value.

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