Aggressive Buying Against Short Selling Forces
Hedge Funds Face Growing Losses in Half-Year Report
[Asia Economy New York=Correspondent Baek Jong-min] 'Ant investors' have taken over Wall Street. Individual investors, who were outraged by the tyranny of financial capital after the 2008 financial crisis, have forced stock market experts to yield, causing ripples not only in the US stock market but also in financial markets worldwide.
On the 27th (local time) in the New York stock market, the stock price of GameStop, a game-related product distributor, closed at $347.51, up 138% from the previous day. Compared to the $17 stock price on the first day of the new year, the increase is twentyfold. The stock price of the theater chain AMC also soared 300% in one day. Although the sharp rise of these stocks had attracted attention since mid-January, it is evaluated that it peaked on this day.
The surge in low-priced small-cap stocks with poor earnings draws attention because individual investors won the battle against Wall Street professional investors. Individual investors rallied through internet communities against hedge funds' short selling and launched aggressive buying.
As the stock prices surged due to individual investors' attacks, hedge funds that suffered huge losses began to buy back stocks, causing prices to soar endlessly. Some hedge funds, unable to endure the losses, applied for bailouts or gave up investments.
The Wall Street Journal (WSJ) described this phenomenon as a "battle between young investors (Nerds) and stock market experts."
This phenomenon occurred amid concerns about overvaluation in the US stock market. It was also pointed out as an example of market instability caused by investment behavior not based on traditional investment theories grounded in earnings.
The concerns have materialized. Rumors spread in the market that the New York stock market's sharp 2% drop on this day was due to hedge funds that suffered losses from GameStop investments selling other stocks.
Recognizing the seriousness of the situation, the White House stepped in to manage it. White House Press Secretary Jen Psaki stated, "Treasury Secretary Janet Yellen and the economic team are reviewing the current situation." The US Securities and Exchange Commission (SEC) also mentioned that it is checking whether there are any issues with GameStop trading.
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