The Viacom Hollywood, California office.
Lucy Nicholson | Reuters
Chinese stocks listed in the US fell sharply last week after several weeks in correction mode.
A trader who participated in a portion of the wild trading in Chinese internet stocks on Friday confirmed that the main cause of Chinese stocks being sold was because a fund, Archegos Capital Management, was pushed out of its positions.
Here is the sequence of events, according to the trader who asked to remain anonymous:
1. The catalyst was ViacomCBS, which launched a $ 3 billion stock offering through Morgan Stanley and JP Morgan earlier this week that fell apart. This resulted in massive sales. This fund has long been a lot of Viacom with a lot of leverage.
2. The dramatic drop in prices at Viacom led to margin calls. Archegos has also long been many of the Chinese Internet names that were traded in the United States
3. Goldman Sachs, Morgan Stanley, Credit Suisse and Deutsche Bank have forced Archegos to liquidate many of the Chinese internet names through unregistered deals, according to the trader. Late Friday night, Goldman added many of the Archegos-held names to its balance sheet and then liquidated them through distribution to customers.
4. Much of this trade was difficult to spot because many of the big deals were over the counter and not printed.
5. Earlier this week, it was reported that the US Securities and Exchange Commission was taking steps to enforce potential sanctions on US-listed Chinese stocks that did not cooperate with US regulators. That was a factor in fueling the Chinese internet mid-week – but the main source of Friday’s mayhem was the forced liquidation of much of Archegos, the trader said.