FTSE 100 set for flat start as traders brace for damage from Viacom sell off and hedge fund blowup

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A massive fall in ViacomCBS shares in the US last week appears to have triggered a flurry of massive firesales of stock by hedge fund Archegos Capital, causing heavy tumbles elsewhere.

Archegos, set up to managed the personal wealth of hedge funder Bill Hwang was reported by the FT as being forced to sell stock after the fall in Viacom left it overly stretched.

Traders will typically borrow to buy shares in order to make bigger profits on the money they invest when those shares rise. But if the shares fall, it can make the broker lending them the stock worry the investor won’t be able to pay them back so the lender demands the investor sells down its share positions to decrease the loan-to-value level, known as “deleveraging”.

In the case of a big fund like Archegos, that can result in huge blocks of shares in multiple companies suddenly going up for sale at the same time, hammering the prices of all of them.

On Friday, that saw about $33 billion wiped off Chinese tech stocks and US media groups.

As European stock markets open today, it will be amid jitters that companies here could also be on the Archegos “sell” list.

Archegos’s Bill Hwang previously ran the Tiger Asia hedge fund for legendary hedgie Julian Robertson’s Tiger Management. Hwang returned the money to investors in 2012 after admitting wire fraud. Robertson’s acolytes such as Hwang were known in the markets as “Tiger cubs”.

The FTSE 100 was being called down 17 points at 6723.3 on the IG trading platform before markets opened today.

Traders have spent the weekend wondering if the deleveraging hitting US stocks could be a trigger for a further round of sales of shares in the media and tech sectors that have surged in value through the pandemic.

So far, the hit only appears to be on specific Archegos stocks and US markets ended Friday higher despite concerns over Europe’s new covid lockdowns.

Britain begins the first in a set of relaxations today which could bring some optimism to markets here.

Europe has decided to block AstraZeneca from sending any of its vaccines out of the EU until it meets its contract promises there first. AstraZeneca is currently hitting production glitches which the EU appears to be punishing it for.

Commentators say its behaviour towards AstraZeneca is looking increasingly odd as other companies such as Pfizer, which unlike AstraZeneca are producing the vaccine for a profit, are also struggling with production but have gone unpunished.

Additionally, analysts point out that it was only a few weeks ago when European leaders were saying AstraZeneca’s medicine was dangerous and didn’t work as well as others.

Little wonder it was reported at the weekend that some sources at the company are now thinking they would not offer the world a profit-free lifesaving-vaccine again. It may be saving millions of lives but the EU response has been to trash its reputation with repeated misinformation and political attacks.

Doubtless other drug developers, set to make tens of billions of dollars in profit from their Covid vaccines, are learning cautionary lessons about dealing with the EU.

Meanwhile, the cases of deaths and infection rates are rising steadily in Europe’s third wave as the incompetent vaccine programme there fails to stem the spread of the disease. France is now struggling with surging cases of the French and Brazilian variants.

Luckily, the UK should soon be receiving extra doses from Moderna next month to fill any supply holdups the EU puts on the AstraZeneca jabs.

That is good news for stocks in the UK domestic leisure and retail sectors, but those in travel and tourism will have a gloomier outlook as Europe’s failings make travel bans look like they will stay for a long time.

Crude oil prices are slightly down today due to hopes the cargo ship Ever Given will be freed from its position blocking the Suez Canal in the coming days.