Why the GameStop Saga will Remain Mostly A Made-in-USA Drama
In general, hedge funds that would be vulnerable to pressure from the type that helped move the stock are few, and cuts outside the United States are difficult.
At first glance, it seems that the scandal with GameStop Corp., which opposed the day traders of Reddit and the giant hedge funds, is becoming global. New accounts at Tiger Brokers in Singapore rose last week, in the UK Trading 212 is the most downloaded app in the country, and in South Korea GameStop is among the top 10 most held foreign stocks.
However, even with such a level of noise, the stock trading revolution that is taking place in the United States, we are unlikely to see it soon in Asia and Europe, writes Bloomberg in its analysis. Tighter restrictions on short selling, limited options trading, and higher taxes and fees will hold the process.
“There are some important elements in European markets that set them apart from the US, which makes it difficult to repeat the situation,” said PwC, who heads global financial services.
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China is the obvious place for this trend to spread further. Retailers dominate stock markets in the world’s second largest economy and stock exchanges such as East Money Information Co. and Xueqiu move purchases in a way similar to Reddit. However, this remains largely a one-sided bet despite the curtailment of short sales following the 2015 market crash.
Restrictions on Chinese markets have been limited, but short bets are still more expensive than in the United States, especially since pension funds are banned.
In general, hedge funds that would be vulnerable to short pressures of the kind that helped move GameStop are few. There are also no single stock options in China to put pressure on buying in the United States. Meanwhile, stock market rules in China limit daily stock movements to 10%, which discourages day traders.
Given the restrictions, hedge funds tend to express bearish views on Chinese companies through shares registered in Hong Kong or the United States.
Hong Kong allows more short selling before options trading, although the city’s markets are dominated by institutions. Trading is also more opaque, so it is difficult to know which fund shortens which shares. There is also no public information about the bear bets of the individual funds. This contrasts with the United States, where Melvin Capital angered day traders and fell 53 percent last month after revealing a huge shortening of GameStop.
“We don’t have armies for retail in Hong Kong because it’s historically a highly institutionalized market,” said Richard Johnston, a Hong Kong-based Asia manager for Albourne Partners who advises on alternative investments. “There are armies in China for retail, but they are all on the long side,” he added.
Korean traders became embroiled in the mania by buying shares of GameStop from Seoul to withdraw their profits just before the position collapsed. However, their opportunities to participate in local cuts are limited. The government banned short selling last year amid a pandemic, and a group of investors went so far as to hire a bus with a slogan against short selling to lobby for a permanent ban. On Wednesday, South Korea agreed to extend the ban until May 2nd.
Why the GameStop Saga will Remain Mostly a Made-in-USA Drama - /10