What is Warren Buffett doing with Berkshire Hathaway Inc.’s $8 billion stake in BYD Co.?
The question is still swirling across trading desks more than a week after a BYD position matching the size of Berkshire’s appeared in Hong Kong’s stock-market clearing system.
Q2 2022 hedge fund letters, conferences and more
While traders initially assumed Buffett was preparing to dump his stake in the high-flying Chinese electric car giant, now they’re not so sure.
With no clear signs that Buffett has exited BYD, other theories are starting to make the rounds. Maybe the 91-year-old billionaire is lending shares to short sellers for extra income, or simply wants to see how the market will respond to the idea of him selling. Or maybe there’s some other back-office explanation that has nothing at all to do with Buffett’s plans for the stock.
The Oracle of Omaha has been characteristically tight-lipped about his intentions, with multiple requests for comment to Berkshire as well as BYD representatives going unanswered. The upshot for now is that BYD’s stock is languishing: it’s down about 7% since fears of a Berkshire exit first emerged, even after the carmaker said its net income probably jumped as much as 207% in the first half. Hong Kong’s benchmark Hang Seng Index has slipped 2.6% in the same period.
“People feel it’s hard to make a clear call on this, despite all the theories,” said Daisy Li, fund manager at EFG Asset Management (HK) Ltd.
The stake in question appeared under a Citibank account in Hong Kong’s stock clearing system on July 11. That stoked speculation that Berkshire might be selling, because shares must enter the clearing system before they can change hands.
So far the amount of stock in the Citibank account hasn’t changed significantly, and there have been no regulatory filings to suggest Berkshire has cut its stake. According to exchange rules, there’s no deadline for a trade to take place after shares are moved into the clearing system.
Some market watchers have speculated the stake may have appeared in the system because it’s being made available for lending to short sellers, said Kenny Wen, head of investment research at KGI Asia in Hong Kong.
Yet it’s unclear whether demand from short sellers would be high enough to justify such a move, Wen added. While short interest in BYD was near the highest in two months as of Tuesday, it still only accounted for 1.3% of the free-floating shares in Hong Kong, IHS Markit data showed. That’s a far cry from the all-time high of more than 20% in 2010.
Read the full article here by Jeanny Yu, Charlotte Yang, Advisor Perspectives.
