Softbank — The Nasdaq Whale Wavering

By Adriaan Brits Saturday, September 12, 2020

Since a September 4 report published in the Financial Times unmasked SoftBank Group (SFTBF) as the surprising “Nasdaq Whale,” the Japan-based giant has been at the center of a media frenzy. The conglomerate has mostly been known for investing in tech startups, such as Uber and WeWork.

Its fund for this purpose is believed to be the world’s largest technology-focused venture capital fund that manages $100 billion. In layman’s terms, investors don’t see SoftBank as a hedge fund that looks to trade share for the short-term benefit.

The Nasdaq Whale

According to the Financial Times, SoftBank Group invested around $4 billion in options focused on technology stocks, including a total exposure of around $30 billion. The result is that Softbank, founded and controlled by the billionaire Masayoshi Son, made around $4 billion in paper profits from these stocks.

“It’s exacerbating moves. That’s why these moves are getting very stretched both ways,” said Danny Kirsch, head of options at brokerage Cornerstone Macro, of the surge in tech options activity.

Wall Street speculated for some time that the aggressive bullish move in US equities is a result of aggressive bets placed by certain hedge funds. Surprisingly, it seems that Softbank was one of the major institutional investors that fueled the recent rally in tech stocks.

“It’s just a trip to the casino. If they’re supposed to be an investment company taking a long-term horizon, then trying to juice your short-term return through options, you’ve turned into a hedge fund,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

“We’ll see if they’re reversing it. A lot of the call buying was an upward lift to the market. The sellers of those calls, then had to buy stocks and hedge and it becomes a self-fulfilling prophecy on the upside”.

According to a filing to the US Securities and Exchange Commission from August, SoftBank reported a $122.9 million stake in Tesla. The biggest stake is in Amazon, worth over $1 billion. Additionally, Son invested in Google’s Alphabet, Adobe, Netflix, Microsoft, and more. Almost all of these stocks lost heavily this week as the stock market corrected lower.

“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?’”

The company’s shifting risk profile has made a lot of investors feel more nervous. Analyst Kirk Boodry, working for Redex Research, believes that the latest news makes the company “uninvestable for some investors.”

Nasdaq Stock Slides Lower

Investors seem to be dumping SoftBank stock in recent days as they punish Son for shifting away from the long-term strategy of his corporation. Today, the Japanese conglomerate SoftBank was one of the worst performers, dropping nearly 3%.

Overall, the stock lost around 15% in four trading days since Friday to hit below ¥5,500 ($51.79) for the first time since early July. The selloff wiped off around $13 billion of the giant’s market value.

A plunge in Softbank stock price just added to the overall bearish sentiment in the equities this week. The risk sentiment further deteriorated on news that pharmaceuticals company AstraZeneca (AZN), which is working on a COVID-19 vaccine with Oxford University, said it had temporarily halted its vaccine trials after one of the volunteers experienced an unexplained illness.

"The optimism balloon floated by vaccine hopes has sprung yet another sizable leak. Positive momentum in clinical trials for a COVID-19 vaccine was a pivotal contributor to the global equity rally over the summer," Stephen Innes, head global markets strategist at AxiCorp, wrote in a research note.

The vaccine news further weighed on the overall risk sentiment, pushing Asian equities lower. China’s Shanghai Composite (SHCOMP) index tumbled 1.9% while the Nikkei 225 (N225) fell 1%, mostly due to a tumble in SoftBank stock price.

Summary

Softbank Group was one of the worst performers in Asia today as investors are still wary that the company has large exposure to tech stocks. A Financial Times story from September 4 unmasked SoftBank as the “Nasdaq Whale,” which aggressively made substantial investments in tech companies to fuel the recent rally.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

Related Articles