The battle between small-time traders and hedge funds that has shaken US and European stock markets moved into Asia on Thursday, with surges in several Australian companies joining a list of social-media hyped moves that have cost financial institutions billions of dollars.
Heavily shorted Australian shares, including Webjet and Tassal Group, climbed more than 5 per cent even as Sydney’s benchmark ASX 200 index fell 2 per cent.
In New York, GameStop, the video game chain at the heart of the slugfest between Wall Street and Main Street, added another 37 per cent in early trading after a two-week, 1,700 per cent surge that has hammered fund investors who were betting the stock would fall.
Driven by an army of individual traders who work through online brokerage apps like Robinhood.com and discuss stocks on anonymous social media messaging boards, the dramatic jump in the stock price of companies including GameStop, BlackBerry Ltd and AMC Corp drew more calls for regulatory scrutiny from commentators.
“The frenzy raises all sorts of questions with respect to possible market manipulation,” said Michael Hewson, chief market analyst at retail broker CMC Markets UK.
“It is already illegal for institutions to coordinate in the manner currently being seen in moving prices on these stocks, raising questions about the legality of what is currently taking place right now on these forums.”
Reddit discussion threads were again humming with chatter about the stocks on Thursday as membership of the trader-focused group WallStreetBets raced past 4 million.
In one discussion, thousands of participants responded “We love this stock” to a post that called for more buying of GameStop and cast retail traders as Iron Man against a hedge fund Thanos in a nod to the superhero movie “Avengers: Endgame”.
BlackBerry and Nokia, however, slipped more than 5 per cent in premarket trading after recording hefty gains this week and derivatives positioning pointed to a greater rise in the number of orders betting GameStop would fall.
“The idea that this is about hedge fund short-sellers transferring funds to a mass of ordinary retail buyers is a compelling story,” said Paul Donovan, chief economist of UBS Global Wealth Management.
“But it is also a story that is unlikely to hold true beyond the brief period of the frenzy.”
The war began last week when famed short seller Andrew Left of Citron Capital bet against GameStop and was met with a barrage of retail traders betting the other way. He said on Wednesday he had abandoned the bet.
Regarded by market professionals as “dumb money”, the pack of traders, some of them former bankers working for themselves, have become an increasingly powerful force worth 20 per cent of equity orders last year, data from Swiss bank UBS showed.
This week’s turmoil caught the attention of the White House, with US president Joe Biden’s economic team – including treasury secretary Janet Yellen on her first full day on the job on Wednesday – “monitoring the situation.”
Reddit said on Wednesday that it had not been contacted by authorities over the surges.