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Precise Investors

Tuesday, March 9, 2021
Stocks & Shares

Asia stock markets feel the ‘GameStop effect’

GameStop

GameStop shares have rallied 2,450% from their 2020 close as small online investors came together and forced hedge funds to lose billions on their short positions

The stock market frenzy around video game retailer GameStop has spilled into Asia, with shorted stocks reflecting the surge on Wall Street and some brokerages restricting trades.

Retail investors in the Asia-Pacific region are drawing inspiration from the GameStop rally to bid up stocks that hedge funds are betting will slump. In the mean time, amateur investors are mimicking the Reddit phenomenon by opening discussion boards on Reddit to synchronize market moves.

GameStop shares have rallied an astonishing 2,450% from their 2020 close as small investors came together and forced hedge funds to lose billions on their short positions.

In Japan, telecom equipment maker Anritsu which is one of the most shorted stocks in the Tokyo market, reached levels last seen in 2001. Other shorted stocks like candymaker Morinaga and airline ANA Holdings also jumped on Thursday.

China Literature, one of the most shorted Hong Kong stocks, according to regulatory data, has surged 15% in the past two days. Sun Art Retail has added 5% this week, while beverage maker Vitasoy hit an eight-month high on Thursday. The two stocks had short interest of almost 10%.

In a new Reddit forum called BursaBets created on Thursday in Malaysia, there were discussions on propping up glove makers that had dropped. There were complaints from forum participants that share prices fell despite a rise in profits. Top Glove surged 8.4% in Kuala Lumpur.

Sydney-listed mining company GME Resources, which shares a similar stock code to GameStop, soared as much as 60% on Thursday. The company said it did not understand the huge stock move, reasoning that it could be because of the stock tickers’ similarity. Trading its shares was halted, with the stock losing a fifth of its value on Friday after trade resumed.

Similarly, two of the most shorted Australian stocks, funeral home operator Invocare and travel company Webjet, surged on Thursday but dropped on Friday.

Meanwhile, stocks that have benefited from the coronavirus outbreak and have attracted investor money on hopes of potential growth have fallen in recent days.

Shares in online medical platform M3 and CyberAgent dropped over 10% this week in Tokyo.

Tomoichiro Kubota, a senior market analyst at Matsui Securities in Tokyo, said hedge funds were likely being forced to shrink their long positions in some stocks. Hedge funds commonly use an investment strategy known as long-short, where a fund manager can sell short as well as buy long.

Hit by the short squeeze, these hedge funds can’t help but reduce their exposure to long-term investments in order to lower the overall risk, Kubota said.

Hedge funds got a brief reprieve after some online brokerages used by the retail investors, including Robinhood Markets, prevented customers from purchasing more shares of companies such as GameStop. Robinhood will allow limited buying from Friday, it said.

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