Sleeping at work
04 August 2020
David Lewis, senior director at FIS, discusses the recent upheavals and changes amid the coronavirus, and how short sellers had readily been taking positions as the pandemic gripped the market, identifying what happened when changes in spending patterns began to emerge
Image: Shutterstock
To say that the first half of 2020 has seen an unprecedented level of change would be to make one of the greatest understatements of recent times. Everything has changed in some way shape or form, and not all in the same direction.
During a recent meeting, socially distanced, of course, a friend that works in the film industry asked me whether it was socially acceptable to admit that changes arising from the COVID-19 crisis had benefitted him. It is easy to understand where he was coming from. Few would want to appear happy that recent events had occurred at all, but some benefits are bound to accrue for some, even if that is just more time at home with family and less time commuting. Such changes are bound to bring social benefits for some and costs for others, even if many feel now that they are sleeping at work rather than working from home.
The differences between those that benefit from the recent upheavals and those that have lost or will lose out is rarely more vivid than in the commercial performance of different industries. Much has been written about the negative impacts to airlines and cruise providers, but what of the winners, if one is permitted to call them that?
In the same way that environmental, social and governance (ESG) issues are influencing and driving changes in investment strategies, there has been a significant shift in consumer spending patterns. Lock down in the UK has, of course, been a nightmare scenario for many businesses, and especially those that rely on footfall in towns, at stations and airports, for example. Witness the collapse and closure of retail stores, coffee shops and cafes affecting the very small to the very large – your local café to John Lewis superstores.
Contrast this with online shopping, which, generically speaking has risen significantly during this period. Angus Thirlwell, the CEO of Hotel Chocolat, the luxury chocolate producer and seller with over 170 locations and more than 70 stores across the UK, observed that the trend toward online shopping they were expecting to play out over the next three years has been compressed into the past three months – and he is not expecting it to revert. Speciality chocolate is not alone. Wallpaper, fences, plants and paint have all been flying off the shelves at B&Q, part of the Kingfisher Group PLC, which also owns Castorama in France.
Kingfisher reported a 25 percent jump in sales this June compared to the prior year as people flooded to their stores and online sales to spend on their homes. With the collapse in some spending opportunities, such as for holiday travel, consumers have been looking for places to spend their money. The huge increase in working from home has meant that the DIY market has boomed. With few expecting a major return to office work in the short or medium term, this trend is potentially one that will continue for some time to come.
Short sellers had readily been taking positions as the pandemic gripped the market, but as changes in spending patterns began to emerge, those positions quickly became much more specifically targeted. The sudden and near complete closure of all commercial activity in many countries around the world put the brakes on all spending as economies ground to a halt. Short positions made good returns in many sectors as shares fell across the markets.
As Figure 1 (overleaf) shows, short sellers also took positions in Kingfisher in the first quarter of the year, rising almost 40 percent by volume between January, and the peak volume in late March. Over that same time period, Kingfisher shares plummeted from £2.20 to a low of £1.24 on 17 March, bringing those holding short positions a return of up to 44 percent.
Perhaps sensing a floor or accurately predicting the shift in consumer spending as the work from home orders continued, short sellers began closing their positions and brought their exposures down by more than 86 percent by late July. Kingfisher shares peaked in the third week of July at £2.58, including a jump of 10 percent that week as the new sales figures were released. This represented a new 12-month high and a rise of some 108 percent since March.
Hotel Chocolat had seen short interest quite low during 2018, rising into 2019, but increasing little more than 10 to 15 percent during 2019 itself (see Figure 1). Q1 saw volumes rise a little, and a jump in mid-February coincided with the shares dipping toward the 12-month low of around £1.90, way below the high of £5.20 back in December 2019. However, once it became clear that the consumers’ sweet tooth was not to be neglected and comfort was to be had in chocolate, the shares rebounded and short sellers melted away, cutting their positions by over half since March as the shares broke back through the £3 level.
Many expect that the move to home-working – or as some say, sleeping at work – that has affected so many is unlikely to unwind completely, which may well prolong the boom in home improvements. Major gains and losses are also to be expected in other sectors, such as biotechnology and pharmaceuticals, while structural changes in society and work will have major effects on the values of commercial real estate. Other changes seen in the first half of this year may well ring permanent changes to the way we travel, how we shop, work and how we spend our leisure time and hard-earned cash – but chocolate, it seems, can help smooth the way.
Figure 1 | Source: FIS Astec Analytics
During a recent meeting, socially distanced, of course, a friend that works in the film industry asked me whether it was socially acceptable to admit that changes arising from the COVID-19 crisis had benefitted him. It is easy to understand where he was coming from. Few would want to appear happy that recent events had occurred at all, but some benefits are bound to accrue for some, even if that is just more time at home with family and less time commuting. Such changes are bound to bring social benefits for some and costs for others, even if many feel now that they are sleeping at work rather than working from home.
The differences between those that benefit from the recent upheavals and those that have lost or will lose out is rarely more vivid than in the commercial performance of different industries. Much has been written about the negative impacts to airlines and cruise providers, but what of the winners, if one is permitted to call them that?
In the same way that environmental, social and governance (ESG) issues are influencing and driving changes in investment strategies, there has been a significant shift in consumer spending patterns. Lock down in the UK has, of course, been a nightmare scenario for many businesses, and especially those that rely on footfall in towns, at stations and airports, for example. Witness the collapse and closure of retail stores, coffee shops and cafes affecting the very small to the very large – your local café to John Lewis superstores.
Contrast this with online shopping, which, generically speaking has risen significantly during this period. Angus Thirlwell, the CEO of Hotel Chocolat, the luxury chocolate producer and seller with over 170 locations and more than 70 stores across the UK, observed that the trend toward online shopping they were expecting to play out over the next three years has been compressed into the past three months – and he is not expecting it to revert. Speciality chocolate is not alone. Wallpaper, fences, plants and paint have all been flying off the shelves at B&Q, part of the Kingfisher Group PLC, which also owns Castorama in France.
Kingfisher reported a 25 percent jump in sales this June compared to the prior year as people flooded to their stores and online sales to spend on their homes. With the collapse in some spending opportunities, such as for holiday travel, consumers have been looking for places to spend their money. The huge increase in working from home has meant that the DIY market has boomed. With few expecting a major return to office work in the short or medium term, this trend is potentially one that will continue for some time to come.
Short sellers had readily been taking positions as the pandemic gripped the market, but as changes in spending patterns began to emerge, those positions quickly became much more specifically targeted. The sudden and near complete closure of all commercial activity in many countries around the world put the brakes on all spending as economies ground to a halt. Short positions made good returns in many sectors as shares fell across the markets.
As Figure 1 (overleaf) shows, short sellers also took positions in Kingfisher in the first quarter of the year, rising almost 40 percent by volume between January, and the peak volume in late March. Over that same time period, Kingfisher shares plummeted from £2.20 to a low of £1.24 on 17 March, bringing those holding short positions a return of up to 44 percent.
Perhaps sensing a floor or accurately predicting the shift in consumer spending as the work from home orders continued, short sellers began closing their positions and brought their exposures down by more than 86 percent by late July. Kingfisher shares peaked in the third week of July at £2.58, including a jump of 10 percent that week as the new sales figures were released. This represented a new 12-month high and a rise of some 108 percent since March.
Hotel Chocolat had seen short interest quite low during 2018, rising into 2019, but increasing little more than 10 to 15 percent during 2019 itself (see Figure 1). Q1 saw volumes rise a little, and a jump in mid-February coincided with the shares dipping toward the 12-month low of around £1.90, way below the high of £5.20 back in December 2019. However, once it became clear that the consumers’ sweet tooth was not to be neglected and comfort was to be had in chocolate, the shares rebounded and short sellers melted away, cutting their positions by over half since March as the shares broke back through the £3 level.
Many expect that the move to home-working – or as some say, sleeping at work – that has affected so many is unlikely to unwind completely, which may well prolong the boom in home improvements. Major gains and losses are also to be expected in other sectors, such as biotechnology and pharmaceuticals, while structural changes in society and work will have major effects on the values of commercial real estate. Other changes seen in the first half of this year may well ring permanent changes to the way we travel, how we shop, work and how we spend our leisure time and hard-earned cash – but chocolate, it seems, can help smooth the way.
Figure 1 | Source: FIS Astec Analytics
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
