Wrapup 2: "We love this stock": GameStop effect spreads as calls for probe build

N Citron

28/01/2021 12:07

(Adds comments; updates with U.S. premarket moves)
    By Sagarika Jaisinghani and Shriya Ramakrishnan
    Jan 28 (Reuters) - The battle between small-time traders and
hedge funds that has shaken U.S. 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  WEB.AX 
and Tassal Group  TGR.AX , climbed more than 5% even as Sydney's
benchmark ASX 200 index  .AXJO  fell 2%.  .AX 
    In New York, GameStop  GME.N , the video game chain at the
heart of the slugfest between Wall Street and Main Street, added
another 37% in early trading after a two-week, 1,700% surge that
has hammered fund investors who were betting the stock would
fall.  urn:newsml:reuters.com:*:nL1N2K22YX
    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
 BB.N  and AMC Corp  AMC.N  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."
    The short squeeze - where traders have to abandon
loss-making "short" bets on a stock falling because it has
instead risen - also fueled a 2% slide in the benchmark S&P 500
 .SPX  on Wednesday as investors sold other assets to cover
their losses.
    Futures tracking the main New York index were down another
0.6% on Thursday.  .N 
    

    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  NOK.N , however, slipped more than 5%
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."
    
    GAME ON
    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.  urn:newsml:reuters.com:*:nFWN2K2160
    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% of equity
orders last year, data from Swiss bank UBS showed.
    The only-way-is-up nature of stock markets over the past
decade, fueled by a constant flow of newly created money from
major central banks, has also made it less risky to bet on
shares rising. 
    The U.S. Federal Reserve kept those taps firmly open at its
latest meeting on Wednesday.  urn:newsml:reuters.com:*:nL1N2K22XP
    This week's turmoil caught the attention of the White House,
with President Joe Biden's economic team - including Treasury
Secretary Janet Yellen on her first full day on the job on
Wednesday - "monitoring the situation."
    Massachusetts state regulator William Galvin called on NYSE
to suspend trading in GameStop for 30 days to allow a
cooling-off period.  urn:newsml:reuters.com:*:nL1N2K23NB
    "The prospect of intervention here is clearly high, but this
will just galvanize the (WallStreetBets) community as it just
brings home the feeling of inequality in financial markets,"
said Chris Weston, head of research at broker Pepperstone in
Melbourne.
    "It's fine to prop up zombie companies through Fed actions
but if retail follows a path that greatly distorts asset prices
by targeting short sellers, then this gets shut down."
    Reddit said on Wednesday that it had not been contacted by
authorities over the surges.  urn:newsml:reuters.com:*:nL1N2K22BX

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EXPLAINER-Why regulators may scrutinize GameStop's Reddit-driven
retail stock surge     urn:newsml:reuters.com:*:nL4N2K246P
TIMELINE-GameStop's 1,600% surge in retail investor vs hedge
fund battle     urn:newsml:reuters.com:*:nL8N2K2494
BREAKINGVIEWS-Short squeezers could end up strangling themselves
    urn:newsml:reuters.com:*:nL8N2K22TV
The big short: GameStop effect puts global bets worth billions
at risk     urn:newsml:reuters.com:*:nL1N2K217R
GameStop surge leaves U.S.-based mutual funds and ETFs behind   
 urn:newsml:reuters.com:*:nL1N2K230Y
Europe's top shorted stocks soar on GameStop contagion   
 urn:newsml:reuters.com:*:nL8N2K22G4
U.S. state regulator says GameStop trading could be
'systemically wrong' - Barron's     urn:newsml:reuters.com:*:nL4N2K20QJ
Bearish GameStop options contracts fly off the shelf after stock
surge     urn:newsml:reuters.com:*:nL1N2K22YX
Hedge fund Melvin Capital has closed GameStop position
-spokesman     urn:newsml:reuters.com:*:nFWN2K20LX
BlackRock may have raked in $2.4 bln on GameStop's retail-driven
stock frenzy     urn:newsml:reuters.com:*:nL4N2K23QG
QUOTES-No let up in short squeeze, retail frenzy forces funds to
cover     urn:newsml:reuters.com:*:nL1N2K21PS
GRAPHIC: GameStock surge timeline    https://tmsnrt.rs/2KSQYX3
GRAPHIC: The short squeeze    https://tmsnrt.rs/3t1OlU8
EXPLAINER-How retail traders squeezed Wall Street for bets
against GameStop     urn:newsml:reuters.com:*:nL1N2K221Y
Retail trading frenzy, reflation trade drive smallcap stocks
higher    https://tmsnrt.rs/2Ylef7l
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Sagarika Jaisinghani, Nikhil Nainan and Sruthi
Shankar in Bengaluru, Saqib Iqbal Ahmed and April Joyner in New
York; and Thyagaraju Adinarayan in London 
Writing by Patrick Graham; Editing by Saumyadeb Chakrabarty)
 ((Sagarika.Jaisinghani@thomsonreuters.com; within U.S. +1 646
223 8780; outside U.S. +91 80 6182 2256;))