An apparent fight between private and professional investors resulted in the shares of an almost failed company, the United States based games company Gamestop, rising by as much as 300 per cent within week last week.
In a world that is moving online, the video games bricks and mortar retailer Gamestop is arguably something of a relic from the past. However earlier this week on Wednesday, the shares of the company surged by another 120 per cent in trading in New York.
According to analysts, this anomaly was because of tech-savvy young day traders who are arguably taking on a confrontational stance against hedge funds – a conflict that has laos been attributed to a generational gap.
Analysts and traders are also concerned that this trend could also spread to other stock markets of the world including in Europe where unusual fluctuations have already been seen this week.
Analysts say that the case of Gamestop is actually a fall out of a tussle between pros at the Wall Street pros and upstart investors who are adept at suing social media platforms such as Reddit. And currently it appears that the upstarts are winning the battle.
“We are seeing some serious funny business in some corners of the market, ” said Neil Wilson from markets.com. “Will it end badly?” asks Thomas Hayes, managing director at Great Hill Capital hedge fund. “Sure. We just don’t know when,” he added.
According to stock market analysts, the surge in the share price of Gamestop is not because of some good news about the business prospects of the company. The company which was described by one professional investor as a “failing mall-based retailer” reported a loss of $795m in 2019 and has potentially incurred a much bigger loss in the pandemic battered 2020.
But a large number of social media day traders who have access to free and low-cost trading platforms such as Robinhood were not deterred by the performance of the company and these investors potentially also have a lot of time on their hands during lockdown. These individual traders have also been exchanging tips and increasing prices via Reddit’s chat thread wallstreetbets.
Blackberry, AMC and Nokia Oyjis are some of the other companies apart from Gamestop that is the target of these day time investors. The US stock market is however currently a battleground between the Goliaths like hedge funds and big investors, and the Davids who make up Reddit’s private punters.
The share prices are being pushed up as Reddit’s retail investors continue to purchase shares of select companies aggressively which imposes a “short squeeze” on the pros.
In under such as situation, the Wall Street investors tend to get back to the market to market to limit their losses as the prices are pushed up further with continued demand.
It appears that the battle between the day traders with Wall Street is personal in nature based on the analysis of the Reddit chat threads, said analyst Neil Wilson.
“Among the many aspects of this story that are strange, what is so unusual is the peculiar vigilante morality of the traders pumping the stock. They seem hell-bent on taking on Wall Street, they seem to hate hedge funds and threads are peppered with insults about ‘boomer’ money. It’s a generational fight, redistributive and all about robbing the rich to give to the millennial ‘poor'”, Wilson said.
(Adapted from BBC.com)