Analysis: A casino or stock market? Retail buying frenzy goes wild

Fangdd Network

10/06/2020 17:29

* Chinese real estate firm soars 400%, mistaken for FANG
stock
    * Stuck-at-home retail traders in stocks buying frenzy
    * Hertz, Chesapeake, Genius some major stock moves

    By Thyagaraju Adinarayan and John McCrank
    LONDON/NEW YORK, June 10 (Reuters) - A raft of small cap
stocks has soared by hundreds of millions of dollars in value in
recent weeks as frenzied retail traders piled in to a blistering
stocks rally.
    Increased savings, stimulus checks from the government, and
ultra-low interest rates due to the coronavirus pandemic have
led to a flood of money into the markets from punters, leading
to chaotic trades via mobile phone apps.
    A little-known Chinese online real estate company's American
depositary shares (ADSs) jumped as much as 1,250% on Tuesday
before closing 400% higher. The reason cited widely on social
media was a part of its name, FANGDD Network  DUO.O .
    "In my 20 years of experience I've never seen retail traders
push stocks around like they're doing right now," said Dennis
Dick, a trader with Bright Trading LLC. "When the retail rush
comes into something, it can really move."
    Chasing the so-called FANG stocks (Facebook, Amazon, Netflix
and Google-owner Alphabet), which powered the Nasdaq 100  .NDX 
above 10,000 points for the first time ever, investors also
bought FANGDD at pricey levels, traders say. 
    At least three London-based traders said the surge was down
to "Robinhood" traders - Robinhood is a popular stock trading
app that greets visitors to its website with the motto "It's
Time to Do Money."
    Robinhood's website said at noon on Wednesday 9,417 of its
users owned FANGDD, up from 4,002 shortly after the market
opened. By midday the stock was down around 50%. A Robinhood
spokeswoman was not immediately available for comment.
    "This is what you get when the markets are powering ahead
and investors will latch onto anything that has a name that
linking to tech stocks," said Jawaid Afsar, a trader at
Securequity Ltd.
    Online brokerages, including Charles Schwab Corp  SCHW.N 
and TD Ameritrade  AMTD.O , saw a surge in new accounts going
back to October, when most adopted Robinhood's commission-free
trading model. New accounts and average daily trading levels
spiked in March when markets were whipsawed by volatility caused
by the coronavirus pandemic. 
    In further evidence that retail investors are giving a
helping hand to the global equities rally, Refinitiv's chief
executive, David Craig, recently wrote on Twitter that the usage
stats on their Eikon terminal showed the number of private
investors retrieving equities data was up 124% in the final week
of May vs. the 2019 average.
    Pointing to U.S. savings surging to $6.2 trillion in April
from $1.4 trillion in February, Goldman Sachs  GS.N  said many
indicators have started to show an increase in retail investor
activity.
    FANGDD issued a statement on Wednesday warning investors the
trading price of its ADSs "could be subject to significant
volatility for various reasons that are out of the company’s
control."
    FANGDD, which reported $517 million in revenue last year,
now has a market capitalisation of around $3.76 billion.
    The moves in FANGDD are reminiscent of recent years in which
punters chased any company with "cannabis" or "blockchain" in
its name. The chaotic trading in FANGDD wasn't a one-off.
    Last week, a similar euphoria was seen in bankrupt or
soon-to-be-bankrupt stocks with Hertz  HTZ.N , Chesapeake
 CHK.N , Whiting  WLL.N  and JC Penney rising 300% to 500%
before pulling back a bit, leaving seasoned traders scratching
their heads.
    Data from Robintrack, a site that tracks activity on the
Robinhood app, showed Hertz was topping the leaderboard for
highest changes in popularity among retail traders.
    In another mysterious move, Rainbow Rangers producer Genius
Brands  GNUS.O  shares soared 300% between June 1 and 3 before
giving up half of those gains to settle at around $4.
 urn:newsml:reuters.com:*:nL4N2DI39R
    "It is frightening to see the complete absence of any common
sense," said a Germany-based trader who has been trading U.S.
equities for close to two decades. "Las Vegas and Macau are
closed, and it shows here."

 (Reporting by Thyagaraju Adinarayan; additional reporting by
John McCrank; editing by Megan Davies and Jonathan Oatis)
 ((thyagaraju.adinarayan@tr.com; +44 20 7542 7015; Reuters
Messaging: thyagaraju.adinarayan.thomsonreuters.com@reuters.net;
Twitter @thyagu))