‘Nerds’ battle sends warning to Hong Kong stock exchange
- It may be time for city regulators to extend current circuit breaker in wake of the GameStop shares fiasco on Wall Street
The world has been watching with fascination the so-called nerds vs Wall Street battle. It’s being seen as mostly an American phenomenon, but its effects are spilling over to other markets.
Silver prices have been pushed to their highest since 2013 after calls from the now infamous group “wallstreetbets” on Reddit to put the squeeze on big banks that have supposedly taken large bets on prices to fall.
In today’s highly connected capital markets, disturbance in one obscure corner can spread to the mainstream. Observers may well think the battle is just a spectator blood sport, but they may want to take precautions.
Several hedge funds have been badly hurt after “shorting” – betting prices will fall – against a small number of stocks with declining businesses, only to see their prices skyrocket.
Wallstreetbets has been blamed or praised – depending on your viewpoint – for the soaring prices of GameStop, a video game chain; AMC, an operator of cinemas in the United States hit badly by the Covid-19 pandemic; and BlackBerry, the once-dominant Canadian smartphone producer and other flat-screen phone makers.
Some see the battle as one of David vs Goliath; others think it’s just classic market manipulation. The controversy has attracted the attention of US regulators and politicians.
Robinhood Markets, a securities firm that caters to young retail investors and other US brokers, has restricted clients from buying into the volatile stocks. Tiger Brokers and Futu, online brokers that help mainlanders invest overseas, had briefly followed suit, only to resume normal trading.
Is there a GameStop hiding somewhere among Asia’s stock markets?
Some big US investors have profited enormously. Silver Lake, the US private equity firm, previously received a debt-to-equity swap from China’s Wanda Group, a major shareholder of AMC.
The revenge of retail investors is also a tale familiar in Hong Kong. In August, the shares of Next Digital jumped 26-fold in a day after calls on social media to support Jimmy Lai Chee-ying, the Apple Daily, publisher currently detained under the national security law. The Next incident and what’s happening in the US show how easily stocks can be manipulated.
It may be time for local regulators to reconsider extending the current 10 per cent circuit breaker to cover stocks other than constituents of the Hang Seng Index and H shares.
