Seven Lakes market analysis

Hello Seven Lakers,

below a market analysis discussing impact of recent news on Blackrock

1/ HOW BLACKROCK IS FINANCING CHINA MILITARY

A/ What’s happening and why is this important

US House Select Committee accused investment fund BlackRock for profiting from investments in the Chinese military

Blackrock invested (via funds) in 20 Chinese companies that have been identified by the committee as “posing national security risks and acting against US interests”

US lawmakers subsequently sent letters to the US funds giant in early August, requesting explanations regarding their holdings in these blacklisted Chinese firms

The four funds held by Blackrock which indirectly financed China Military were the following:

• iShares MSCI Emerging Markets

• iShares MSCI China ETF

• iShares MSCI China A ETF

• BlackRock China A Opportunities Fund

Given the accusations of US House Select Committee, lot of other market participants similar to Blackrock started selling the mentioned funds, causing a massive selloff:

• iShares MSCI Emerging Markets: investors withdrew $1.9bn in August out of $21.6bn

• iShares MSCI China ETF: investors withdrew $89mn in August out of $7.6bn

• iShares MSCI China A ETF: investors withdrew $14mn out of $290mn in August

• BlackRock China A Opportunities Fund: investors withdrew $2mn in August out of $17mn

B/ Key takeways

• Lot of institutional investors are still invested in those funds exposed to blacklisted stocks: have a look if your portfolio / 401k has exposure to them

• Lot of analysts in the space (such as Jeff Tjornehoj, US-based senior director of fund insights at Broadridge) claimed that the outflows were more a consequence of the result of “poor performance” in Chinese equities rather than of the fear to be a backer of China Military

And what analysts say might be true: China market is very weak right now. It seems an increasing number of cracks are appearing in China’s economy

Many market participants invested into China when the Chinese government began to reopen its economy and remove Covid-related restrictions at the beginning of this year

But, as China growth targets missed the mark and risks increased, investors are loosing interest in the China-reopening trade

2/ POLITICAL / ALTERNATIVE DATA ANALYSIS ON BLACKROCK

A/ Politicians trades

Now, have a look of the trades made by Politicians the few months before Blackrock investigation 

No politician bought the stock, and a list of few politicians sold the stock heavily (even if the sales orders were placed few months before the accusations)

It seems like somebody knew that something was about to happen to Blackrock…

B/ Insider trading

As you see in the chart below, insiders at Blackrock (i.e. CEO + top management) sold the Blackrock stock massively in each period before the investigation

Maybe they knew that a US investigation was about to happen?

As seen before, some suspicious trades were made by Congress Members and insiders at the company

However, the GOOD NEWS is that their moves can be copied (politicians and insiders need to disclose their stock positions)

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C/ Blackrock is becoming more and more popular

As you can see from growth in Twitter followers, Blackrock is becoming more and more popular with time. Not optimal, given they are placing sketchy trades, and the more Blackrock becomes popular, the more Americans are exposed to those investments

D/ What are whales doing?

Whales (i.e., sizable investors) seem very balanced on the stock in the last few weeks

Some whales sold it, some whales bought it, but it seems like a 50-50 balance

SUMMARY

• Blackrock indirectly invested in Chinese military and the company has been investigated by US House Select Committee

• This caused massive selloff in China related funds

• Some analysts claimed that the selloff is due to China structural weakness rather than Blackrock-related panic

• US politicians have been selling Blackrock stock heavily the months before the announcement: did they know the investigation was coming?

• Blackrock insiders (CEO / top management) have been selling Blackrock stock heavily the months before the announcement: did they know the investigation was coming?

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