TOKYO (BLOOMBERG) - SoftBank Group shares slid as much as 7.1 per cent on Wednesday (Sept 9), taking losses to about 14 per cent this week after the Japanese conglomerate made substantial bets on equity derivatives in tech stocks before a broad sector sell-off.
The Japanese company touched a low of 5,432 yen (S$70.30) in Tokyo morning trade. It has shed roughly US$17 billion (S$23.3 billion) of market value since Monday as SoftBank's big bets on high-flying tech stocks from Amazon.com 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, which had defied gravity and market watchers for much of the year, was the worst performer on the Nasdaq 100 Index on Tuesday, which fell 4.8 per cent amid a sell-off in equities. SoftBank has said it held US$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 US$3.9 billion as of June 30, according to a filing to the US Securities and Exchange Commission dated Aug 17. The portfolio included US$1.04 billion of Amazon stock, its biggest investment, a US$475 million stake in Alphabet, US$248.6 million of Adobe Inc. and US$189 million of Netflix Inc.
The Tokyo-based company booked a 65.4 billion yen 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 US$4 billion on options focused on tech stocks with an overall exposure of about US$30 billion. The company is sitting on paper profits of about US$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.
