Who is the real creator of volatility? Is it George Soros or Elon Musk?
The following is a guest editorial courtesy of Andrew Saks, Head of Research and Analysis at ETX Capital.
The very upper echelons of the FX and electronic trading world are subject to an environment in which it is just as easy to be out of favor as it is to be heralded as someone who can do no wrong.
Bill Hwang, the founder of ill-fated family office and hedge fund Archegos, which collapsed in such a catastrophic fashion that it left a monstrous $20 billion hole in the global capital markets within just two days, bringing the capital position of Tier 1 banks including Credit Suisse and Nomura into question, can do no wrong it seems.
The rather fickle means by which counterparties are chosen by banks has been exposed, given that Mr Hwang was able to cause the over-exuberant liquidity providers at the Tier 1 banks that got involved in providing Archegos Capital Management with liquidity without giving a nod to the risks involved whilst the very same banks will demand over $50 million in balance sheet capital before even considering giving any counterparty credit to an OTC derivatives company despite its prudent risk management and length of time in business.
In layman’s terms, these banks saw multiple noughts on the end of potential profits because Mr Hwang has been touted as a hot-shot, so they threw caution to the wind to onboard his fund, whilst still making long-established and good quality FX brokerages jump through hoops to ensure that they can access liquidity from Tier 1 banks despite several years of finely honed risk management technology and some of the most talented executives in the entire global financial sector constantly refining the execution methodology of retail FX firms.
Mr Hwang, who already had form – he was sanctioned in 2012 whilst operating Tiger Asia Management, his previous firm, which pleaded guilty to insider trading of Chinese bank stocks in 2012 and paid a $44 million fine. Just two years later In 2014, Mr Hwang was banned from trading in Hong Kong for four years, yet the banks which are now licking substantial wounds still allowed him to take huge positions.
This may have been an almost unbelievable set of circumstances in its own right, yet here we are today, after the trail of destruction has been clearly detailed and Mr Hwang’s dubious past a clear indicator of who not to do business with, and he still is being held up as a golden boy in the eyes of some otherwise astute and well respected entities.
Perhaps this is how large funds make the clever money work for them, however it certainly appears as though there is no final demise for the stocks associated with the Archegos collapse, as they have attracted the attention of billionaire investor George Soros.
Over the weekend, it became known that Mr Soros bought shares in ViacomCBS Inc (VIAC.O), Discovery Inc (DISCA.O) and Baidu Inc (9888.HK) as they were being sold off during the collapse of Archegos Capital Management.
On Friday last week, regulatory filings showed that Mr Soros’ company Soros Fund Management, bought $194 million of ViacomCBS, Baidu stock valued at $77 million, as well $46 million of Vipshop Holdings Ltd (VIPS.N) and $34 million of Tencent Music Entertainment Group (TME.N) during the first quarter of 2021, and it was confirmed that Soros Fund Management did not hold any of these shares before the demise of Archegos Capital Management.
The banks may be picking up the pieces after what could certainly be considered to be a metaphorical fire, however there are always winners in such circumstances and Mr Soros is a shrewd investor who knows when to buy low and sell high.
Market volatility is a dynamic all traders are looking for, and for quite a few years it has been relatively notable by its absence to the extent that many retail FX firms had built an entire business model on low-volatility markets, however these days the clever money is where the creators of ripples are, and for that reason, the most well organized risk managers will have factored that into their systems.
George Soros is, after all, just as much of an influencer as Elon Musk – just a far more seasoned and experienced one!
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