Shares in SoftBank fell more than 6 per cent in Tokyo on Monday morning after weekend revelations that the Japanese conglomerate was the mystery “whale” that had driven US technology stocks to record highs.
The Financial Times reported on Sunday that the group’s trading strategy meant it was now sitting on gains of about $4bn after founder Masayoshi Son drove aggressive bets on equity derivatives.
Traders in Tokyo said the report had helped crystallise the perception among some investors that SoftBank’s behaviour as a company increasingly resembled that of a hedge fund, populated with former investment bankers with a massive appetite for risk.
SoftBank shares fell 5.4 per cent in the first half hour of trading before continuing their decline later in the morning session, while the benchmark Nikkei 225 was almost flat. Before the Monday fall, the stock had gained 33 per cent since the start of the year.
The slide in SoftBank shares followed two days of declines on the Nasdaq at the end of last week.
It also came on the heels of warnings from Nomura’s Japan equity strategist, Yunosuke Ikeda, that the early part of September could usher in a broader sell-off of tech stocks in Tokyo as institutional investors return from vacation and unload stocks left overvalued by summer options purchases by individuals.
Fund managers said retail investors, which make up 30 per cent of SoftBank’s shareholder registry, reacted particularly negatively to the company’s latest shift in investment strategy.
“For institutional investors who understand how options trades work, many don’t anticipate a major impact on SoftBank’s earnings,” said Naoki Fujiwara, a fund manager at Tokyo-based Shinkin Asset Management. But retail investors who back SoftBank “are worried the derivatives trades will lead to major losses again”.
SoftBank’s high-risk strategy has been built up over the past few months, according to people with direct knowledge of the matter, during which time the group spent about $4bn on options premiums focused on individual US tech stocks.
In total, it has taken on notional exposure of about $30bn using call options — bets on rising stock prices that provide the right to buy stocks at a preset price on future dates. Some of this position has been offset by other contracts bought as hedges.
SoftBank has declined to comment.
While SoftBank’s huge derivatives bet on selected US stocks has worked for now, leaving the Japanese group with large albeit as yet unrealised profits, a continued pullback in equity markets could erode returns.
Meanwhile, analysts in SoftBank’s home market warned of the heightened sensitivity in certain parts of the Tokyo Stock Exchange to a broader rout of US technology stocks.
Over the summer, Japanese retail investors have piled into tech and game stocks, pushing the smaller-cap Mothers market to a two-year high. Analysts say many of those names could now be vulnerable.