10 ★ FINANCIAL TIMES Friday27 March 2020

Carson Block

Markets Insight

T

here is one sure-fire feature

of crises — lawyers and

lobbyists from big compa-

nies descend on capital

cities to try to enact their

clients’listsofprotectionistfantasies.So

it has gone with the recent imposition of

short-selling bans in South Korea, Italy,

France,Greece,Spainandothers.

Not only are these bans solutions in

search ofproblems ut, worse, theyb

harmmarkets.

Many of these big companies — let us

call them corporate socialists, or

CorpSocs — surely understand that the

vast majority of selling during this mar-

ket rout has been from investors with

longpositions.

It is almost amusing to those of us in

the short-seller community that any-

body thinks we have enough capital to

putrealsellingpressureonthemarket.

During the recovery from the global

financial crisis, numerous short-sellers

shut down and, right now, the two larg-

est dedicated short-selling firms in the

worldeachmanagemuchlessthan$2bn

in assets. Contrast that to Fidelity

Investments, which manages about

$2.5tnoflong-onlyassets.

Moreover, banning short-selling

reduces the ability of large long-biased

investors to take risk, because it

removestheirabilitytohedge.

Say, for example, that a long-biased

investor with a strong belief in Fiat

Chrysler’s ability to manage through

this crisis wanted to increase its expo-

sure by shorting a basket of rival auto-

makers.

In this way, the investor would be able

toneutralisemuchofthe“beta”,ormar-

ket movements, of its position in Fiat

Chrysler. However, if you take away the

ability of these long investors to hedge

their long positions in times of extreme

movement such as these, the hypotheti-

cal investor above might sell part — or

all—ofitslongposition.

Iffurtherproofwereneededthatban-

ning shorts is a dumb idea, it has been

shown empirically that restrictions

imposesignificantcostsonmarkets.

In 2012, three economists at the Fed-

eral Reserve Bank of New York pub-

lished the results of their esearchr ntoi

short-selling bans imposed in 2008 and

2011. They concluded that, not only did
      the bans have “little impact on stock
      prices”, but that they “lowered market
      liquidityandincreasedtradingcosts”.

Since the last crisis, the CorpSocs got

their tax breaks, talked up their stocks

andmadetheirmanagementteamsfab-

ulously wealthy withrepresentation

from law firms like Wachtell, Lipton,

Rosen & Katz, where the partners’

hourly rates exceed some people’s

monthlyearnings.

At the same time, many of them com-

plainedaboutshortsbecause,itseemed,

we were the only ones who saw the folly

of their short-termist and selfish ethos.

Nowtheirunbridledgreedisblowingup

and they want government help while

still trying to muzzle those whose job it

istoexposewhatliesbeneath.

Investors, however, benefit from the

awareness of risks that short-sellers

provide. Short-sellers have warned for

years, for example, about the fragility

created by companies issuing huge

amounts of debt to fund buybacks and

takeovers. Shorts have warned for years

about China — and I have personally

been warning about the pandemic risk

Chinaposesforoveradecade.

We see risks better than most policy-

makers and investors because it is our

job to see risk. In contrast, the deca-

dence of the post-crisis period saw some

of the greatest gains flow to those who

buried their heads in the sand and wil-

fullyoverlookedrisk.

This is the crowd that took its cue

from ex-Citigroup CEO Chuck Prince:

“As long as the music is playing, you’ve

gottogetupanddance.”

Short-selling is akin to the freedom of

expressionandtheabilitytocriticisethe

powerfulthathasformedthebedrockof

ourdemocraciesfortwocenturies.

Inanerainwhichcompanies’massive

legal budgets are often able to keep reg-

ulators at bay, short-sellers are one of

the few forces holding short-termist —

or even lawbreaking — management

teamsaccountable.

In December of last year, my firmsaid

NMC Health was a fraud; it has since

emergedthattheformerFTSE100com-

pany has at least $4bn in concealed

debts. Our exposures of other listed

frauds has led to seven delistings by reg-

ulatorsovertheyears.

Those pushing for bans on shorts are

driven either by wilful ignorance or a

desire to further entrench corporate

socialismastheoverarchingprincipleof

ourcapitalistsystem.ThemoreCorpSoc

is allowed to drive capitalism, the more

voterswillturnagainstcapitalism.

Carson Block is an activist short-seller and

the founder and chief investment officer of

Muddy Waters Capital

Short-selling bans

are handouts to

corporate socialists

Short-selling is akin to the

freedom of expression that

has formed the bedrock

of our democracies

Boeing nd the airlines led US marketsa

towards a third straight gain after the US

Senate voted through a $58bn rescue

package for the aviation industry.

Carnival nda Royal Caribbean Cruises,

among the year’s worst performers, also

rebounded, even though it was not clear

immediately whether the cruise industry

would be eligible for federal aid.

“We think cruise lines will survive the

Covid crisis from an operational and

liquidity perspective, either with existing

funding or future stimulus,” said

Macquarie, which saw rebuilding

customer confidence as the biggest

challenge for the industry. “[G]iven the

operating cash flow picture for the sector,

export credit financing already in place

for new builds and a strongly oversold

position today, cruise line shares have

substantial upside.”

Healthcare distributorHenry Schein

gained after saying it had started

delivering Covid-19 pinprick tests.

Bristol-Myers Squibb limbed after thec

Food and Drug Administration approved

its multiple sclerosis treatment Zeposia,

which was a key asset acquired last year

as part of its $74bn Celgene takeover.

ViacomCBS lid after parent companys

National Amusements was forced to

amend borrowing terms due to a fall in

shares of the broadcaster that it had

pledged as collateral.Bryce Elder

Wall Street Eurozone London

Umicore issed out on an afternoonm

market rally after the Belgian specialist

chemicals group cancelled its dividend

and warned that autocatalyst plants

outside Asia had been closed temporarily.

Analysts said the production lines were

providing about a quarter of group sales

and worried that the shutdown may

affect Umicore’s echargeable batteryr

materials business, which is widely

expected to be its main growth driver

beyond 2022.

UBS estimated that Umicore had

enough liquidity to pay fixed cash costs

for a year if operating cash flow fell to

zero.

The biggest fallers in recent weeks led

the way yesterday in the wider markets

with French bankNatixis eading thel

Stoxx Europe 600 gainers as credit

quality fears eased.

Airbus ollowed its state-assisted USf

peers higher, even after saying it was

cutting wing production for the next

three weeks.

The jet maker was helped by a report

that Germany may order as many as 90

Eurofighter jets, which also buoyed key

suppliers such asSafran.

Renault ose amid speculation thatr

Mitsubishi might take a stake.

Valora, the Swiss operator of retail

kiosks, faded after unexpectedly

scrapping its dividend.Bryce Elder

Rentokil Initial ed the FTSE 100 gainersl

on the back of a Goldman Sachs upgrade

to “buy”.

Wednesday’s profit warning from the

pest control specialist gave investors an

attractive entry point for a business that

was likely to emerge stronger from the

current crisis, the broker said.

Recent sterling weakness was a

positive for earnings yet the shares were

trading at a significant discount both to

their historical valuation and those of US

peers Rollins and ServiceMaster, it said.

Barratt Developments ed a rally forl

the housebuilders after being added to

Bank of America’s “buy” list.

The paralysis in the housing market

would cut sector earnings by 28 per cent

this year and make dividends uncertain

but balance sheets should be secure, said

the broker, which also advised buying

Persimmon and Taylor Wimpey.

British Land lipped after setting outs

the terms of rent holidays for its tenants

at a cost of £43m, or about 8.5 per cent of

the annualised total.

Smaller peerCapital & Counties dgede

higher after suspending a share buyback

but making no reference to its dividend.

Intu, the shopping centre developer,

slipped towards a record low after

warning that by Wednesday it had

received just 29 per cent of rent due this

quarter.Bryce Elder

3 Wall Street heading for third straight

day of gains despite record jobless claims

3 Loosening of ECB bond-buying rules

sends yields on eurozone debt lower

3 Oil prices retreat amid worries over

plummeting demand for crude

Global stocks continued to rally yesterday

as efforts by policymakers to tackle

Covid-19 appeared to overshadow

worrying data showing how the pandemic

was taking its toll on economies.

Not even figures revealing record high

US jobless claims was enough to curb

appetite for Wall Street stocks, which

were on track for a third consecutive day

of rises by midday yesterday.

The S&P 500 index climbed 4 per cent

despite more than 3m people filing claims

for unemployment benefits last week in

the US, according to data released by the

labour department.

“The US jobless claims number is way,

way worse than the consensus estimate,”

said Neil Birrell, chief investment officer

at Premier Miton. “That shows the huge

shock that the economy is suffering.”

The “numbers were almost as awful as

many had feared”, added Seema Shah,

chief strategist at Principal Global

Investors. “Over the next few weeks,

jobless claim numbers will give us a good

idea if the US can expect a V-shaped

recovery or a U-shaped recovery.”

The tech-leaning Nasdaq Composite

rose 3.7 per cent yesterday and the Dow

Jones Industrial Average gained more

than 5 per cent.

Giving the Dow a lift was a strong

bounce back for Boeing stock. Within

Washington’s forthcoming stimulus

package, the aerospace group was

reported to be significant beneficiary.

In Europe, the loosening of rules

curbing the central bank’s ability to buy

bonds from some countries helped debt

on the continent rally, reducing financing

costs for nations hit hardest by

coronavirus such as Italy and Spain.

Following the news, the yield on Spain’s

10-year bond fell 30 basis points while

the equivalent Italian debt slid 35bp.

Stocks in the region also staged a late

rally with the composite Stoxx Europe

600 index rising 2.6 per cent.

In commodities, gold augmented its

rise above $1,600 an ounce, hitting $1,

yesterday but oil prices retreated.

Concerns about reduced demand for

crude has been weighing on the sector

for months. “Global isolation measures

are leading to an unprecedented collapse

in oil demand, which we now forecast will

fall by 10.5mb/d [million barrels a day] in

March and by 18.7mb/d in April,” said

Goldman Sachs.

Brent crude, the international

benchmark, sank 3.9 per cent to $26.33 a

barrel while WTI, the US marker, tumbled

more than 8 per cent to $22.52 a barrel.

Ray Douglas

What you need to know

European debt rallies after ECB removes limits on bond buying

-year yield ()

Source: Refinitiv













Jan  Mar

Italian bonds

Spanish bonds

The day in the markets

Markets update

US Eurozone Japan UK China Brazil

Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa

Level 2593.48 1265.16 18664.60 5815.73 2764.91 77748.

% change on day 4.76 2.37 -4.51 2.24 -0.60 3.

Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $

Level 100.263 1.083 111.435 1.176 7.100 5.

% change on day -0.779 0.000 0.000 0.000 0.000 0.

Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond

Yield 0.814 -0.366 0.003 0.395 2.682 7.

Basis point change on day -1.290 -10.100 -2.890 -4.500 -0.100 -141.

World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)

Level 291.14 26.38 22.81 1605.45 13.97 2297.

% change on day 3.22 -4.11 -5.78 -0.02 2.50 0.

Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index

| |||||||||||||||| |||

Jan 2020 Mar

1920

2560

3200

3840

| ||| |||||||| ||||||||

Jan 2020 Mar

960

1280

1600

1920

| |||||| |||||||| |||||

Jan 2020 Mar

3840

5120

6400

7680

Biggest movers

% US Eurozone UK

Ups

Occidental Petroleum 21.

Synchrony Fin 18.

Carnival 17.

Coty 17.

Valero Energy 17.

Natixis 23.

Airbus 20.

Safran 12.

Ucb 10.

Gecina 10.

Rentokil Initial 17.

Legal & General 14.

Standard Life Aberdeen 14.

Meggitt 13.

Ashtead 13.

%

Downs

Viacomcbs -5.

Jm Smucker (the) -2.

Carmax -2.

Analog Devices -2.

Tyson Foods -2.

Prices taken at 17:00 GMT

Klepierre -8.

Publicise -6.

Telecom Italia -4.

Ses -4.

Telefonica -3.

Based on the constituents of the FTSE Eurofirst 300 Eurozone

M&g -6.

British Land -3.

Royal Bank Of Scotland -3.

Bhp -3.

Royal Dutch Shell -3.

All data provided by Morningstar unless otherwise noted.

MARKETS & INVESTING

MARCH 27 2020 Section:Markets Time: 3/202026/ - 18:51 User:stephen.smith Page Name:MARKETS2, Part,Page,Edition:EUR , 10, 1