Upheavals: More Bubbles in the Future? How the GameStop mania could affect the stock markets | message
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GameStop shares catapulted to record high by Reddit users
More retail investors are flocking to the market
Social media play a bigger role in stock picking
The GameStop saga shook up the stock markets and caused quite a stir. What happened? Numerous small investors have come together via the Reddit subforum “wallstreetbets” to buy shares in the games retailer GameStop, which is shortened by hedge funds, and thus to force the short sellers to give up their short positions. The strategy worked – very well. Within a very short time, the price of GameStop shares was catapulted from around US $ 20 to a peak of almost US $ 483. In the meantime, however, the excitement has clearly subsided and the GameStop paper has come back from its record high.
In the wake of the price explosion of the stationary games seller’s share, other titles, many of which were sold short, also went through similar rallies, such as the US cinema chain AMC Entertainment. In Germany, for example, Varta and EVOTEC or the leasing company GRENKE, which had come under pressure, experienced significant price increases at times.
Small investors organize themselves over the Internet
According to experts, the coordinated meeting of small investors via the Internet could open up a new era in the market. On the one hand, this is driven by the fact that more small investors flock to the market, and on the other hand, the clientele is also rejuvenated somewhat by broker apps such as Robinhood or Trade Republic. The pandemic is also likely to have made its contribution here, through “an excess of energy,” as Betterment expert Dan Egan told CNBC. The factor of social inequality may also have played a role, as many of the investors participating in the runners would also have simply seen satisfaction in “showing it to the big ones,” as Veljko Fotak of the University of Buffalo puts it.
Bubbles form faster
The emergence of bubbles on the stock market is not a novelty in itself. What is different than before, however, is “the magnitude and speed of the event,” Fotak told CNBC. The momentum created by the use of social media also plays a major role here. According to Morningstar strategist David Sekera, there are many people who are tempted to invest by friends or people they follow.
A current example of this is the price rally for the Dogecoin spa currency, which is being massively driven by Tesla boss Elon Musk. He never tires of stressing on his Twitter account how enthusiastic he is about the digital currency, which promptly leads to big swings.
But while Musk primarily relies on funny memes, Sekera notes that there are now many individuals on social networks who advertise various stocks in a professional manner and also back this up with data. “The days when research on stocks was limited to the big, multinational Wall Street investment banks are long gone,” the Morningstar strategist told CNBC.
Fewer shorts could upset the market balance
But what else do these changes mean for the stock markets? For example, there are hedge funds like Melvin Capital, which lost a lot of money to the GameStop shortsqueeze. Will they continue to focus on short sales in the future? Here Sekera assumes that they have learned from their mistakes and will be much more careful in building up short positions in the future. However, a lack of short selling can also lead to more bubbles in the market, argues university professor Fotak. After all, short selling is motivated by a pessimistic attitude towards a company. If they cease to exist, an imbalance in the market can result, in which too many optimists drive a stock up: “And in this environment with market valuations at record highs, we need the opposite views of short sellers more than ever,” says Fotak. In addition, shortsellers could also help to break up and expose fraudulent companies in the market, as happened with the now insolvent payment service provider Wirecard.
So shortsellers are part of a healthy market; if they are missing, the whole system becomes less efficient, which in turn affects all market participants, says Fotak.
Finanzen.net editorial team
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