GameStop frenzy unlikely to have a lasting impact
Last week’s Gamestop hype is unlikely to have a fundamental impact on markets, according to commentators, and more likely to be pure noise.
Shares in video game retailer GameStop were pushed over 1,900% in three weeks by users of the website Reddit in order to cause hedge funds who had shorted the stock to lose money. However, they later fell again after trading platforms moved to restrict trading of the stock.
The price of the stock peaked at US$480 ($628), with a market cap of US$35 billion, but was now trading at less than US$100.
Shane Oliver, chief economist at AMP Capital, said: “The frenzy of US retail day traders pushing up stocks that have been shorted by high-profile hedge funds causing their prices to surge is creating a lot of noise and messing up the shorting strategies of some hedge funds, but it’s unlikely to have a lasting fundamental impact.
“Ultimately if the hedge funds were fundamentally right then the stocks will go down and the day traders will get very badly burned and feel that they have been manipulated by the chat room chatter than got them in the first place (in fact maybe they were) which will serve to damp down such activity in the future.”
“The challenges with COVID-19 on our ability to work and our lives has now created another wave of new market participants with traders now speculating on apps that makes trading appear like a game as well as chat forums ramping up the price of speculative stocks. As always, it is the young or less experienced that are attracted to this in the hopes of making a fortune,” Dale Gillham, chief analyst at Wealth Within, said
Paul O’Connor, head of the multi-asset team at Janus Henderson, said: “While these brawls between retail speculators and hedge funds have been distracting and at times entertaining, we see them more as being localised tussles over a few highly-contested stocks (with high short interest and options exposures) than something with broader or enduring market significance. The overall impact on long-only investors, quant funds and macro investors has been modest”.
However, O’Connor indicated the events might encourage regulators, particularly in the US, to take tougher action on the activities of day traders.
Last week’s Gamestop hype is unlikely to have a fundamental impact on markets, according to commentators, and more likely to be pure noise.
Shares in video game retailer GameStop were pushed over 1,900% in three weeks by users of the website Reddit in order to cause hedge funds who had shorted the stock to lose money. However, they later fell again after trading platforms moved to restrict trading of the stock.
The price of the stock peaked at US$480 ($628), with a market cap of US$35 billion, but was now trading at less than US$100.
Shane Oliver, chief economist at AMP Capital, said: “The frenzy of US retail day traders pushing up stocks that have been shorted by high-profile hedge funds causing their prices to surge is creating a lot of noise and messing up the shorting strategies of some hedge funds, but it’s unlikely to have a lasting fundamental impact.
“Ultimately if the hedge funds were fundamentally right then the stocks will go down and the day traders will get very badly burned and feel that they have been manipulated by the chat room chatter than got them in the first place (in fact maybe they were) which will serve to damp down such activity in the future.”
“The challenges with COVID-19 on our ability to work and our lives has now created another wave of new market participants with traders now speculating on apps that makes trading appear like a game as well as chat forums ramping up the price of speculative stocks. As always, it is the young or less experienced that are attracted to this in the hopes of making a fortune,” Dale Gillham, chief analyst at Wealth Within, said
Paul O’Connor, head of the multi-asset team at Janus Henderson, said: “While these brawls between retail speculators and hedge funds have been distracting and at times entertaining, we see them more as being localised tussles over a few highly-contested stocks (with high short interest and options exposures) than something with broader or enduring market significance. The overall impact on long-only investors, quant funds and macro investors has been modest”.
However, O’Connor indicated the events might encourage regulators, particularly in the US, to take tougher action on the activities of day traders.
AUTHOR
Laura Dew
Recommended for you
Statutory NPAT at Pacific Current has almost halved in FY25 to $58.2 million as the result of an investment restructure.
Being able to provide certainty about redemptions is worth fund managers pursuing when targeting the retail market even if it means sacrificing returns, according to Federation Asset Management.
Regal chief investment officer Philip King will step down from listed investment company VGI Partners Global Investments after the LIC reported a loss of $17.6 million for FY25.
Real asset commentators have shared what advisers should be considering when conducting their due diligence on the assets and how they can mitigate illiquidity for retail clients.
