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SoftBank shares fell 8 percent in Tokyo on Monday after revelations over the weekend that the Japanese conglomerate was the mysterious “whale” that had pushed US tech stocks to record highs.
The Financial Times reported on Sunday that the group’s trading strategy meant that it now had profits of around $ 4 billion after founder Masayoshi Son pushed aggressive bets on equity derivatives.
Traders in Tokyo said the report had helped crystallize the perception among some investors that SoftBank’s behavior as a company increasingly resembled that of a hedge fund, populated by former investment bankers with enormous appetite for risk. .
SoftBank shares fell 5.4 percent in the first half hour of trading before continuing their slide as the session progressed. The benchmark Nikkei 225 index, in which SoftBank is the second largest component, according to Bloomberg data, was down 0.3%. Before Monday’s slide, the stock had gained 33% this year.
SoftBank’s stock slump followed two days of declines on the Nasdaq late last week.
It also came on the heels of warnings from Nomura’s Japanese equity strategist Yunosuke Ikeda that the first part of September could usher in a sell-off of tech stocks in Tokyo as institutional investors return from the holidays and download stocks that were overvalued by summer options. purchases by individuals.
Fund managers said that retail investors, who make up 30 percent of SoftBank’s shareholder record, reacted particularly negatively to the company’s latest change in investment strategy.
“For institutional investors who understand how options trading works, many do not anticipate a major impact on SoftBank’s earnings,” said Naoki Fujiwara, a fund manager at Tokyo-based Shinkin Asset Management. But the retail investors backing SoftBank “are concerned that derivatives trading will again generate significant losses.”
SoftBank’s high-risk strategy has developed in recent months, according to people with direct knowledge of the matter, during which time the group spent about $ 4 billion on option premiums focused on individual US tech stocks.
In total, it has assumed a theoretical exposure of about $ 30 billion using call options: bets on rising share prices that grant the right to buy shares at a preset price at future dates. Part of this position has been offset by other contracts acquired as hedges.
SoftBank has declined to comment.
While SoftBank’s huge derivatives bet on select U.S. stocks has worked for now, leaving the Japanese group with big, albeit unrealized gains, a continued pullback in equity markets could erode returns.
Meanwhile, SoftBank local market analysts warned of heightened sensitivity in certain parts of the Tokyo Stock Exchange to a broader slide in US tech stocks.
Over the summer, Japanese retail investors have been piling up in tech and gaming stocks, pushing the market for smaller-cap mothers to a two-year high. Analysts say that many of those names could now be vulnerable.
