Markets Jan 29

Asia's army of small investors takes on short-sellers, GameStop style

Active retail traders dubbed ants and moths challenge the established market, as brokerages are seeing younger, much more leveraged and influential players

Asia's army of small investors takes on short-sellers, GameStop style
A GameStop store in New York. The struggling chain has seen its share price rise from $18 to a record $483 within days, while its $28 billion market capitalisation exceeds about half the companies on the S&P 500. File photo by Reuters.

(ATF) Asia's retail investors, emboldened by the meteoric rise of video-game retailer GameStop, are joining their online US counterparts and taking on short sellers and making their brokers nervous enough to cut off margin lending.

In South Korea, small investors known as "ants" have borrowed so much money to dabble in stocks that at least half a dozen brokerages have stopped offering them leverage.

"Not afraid, not flinching," said Ji-Han Kim, who works at a food delivery chain in Seoul and whose stock portfolio includes Chinese drone-maker Ehang, which he says has made him a 412% return, and chip giant Samsung Electronics. "I see it as a bubble that doesn't burst for a while."

However, this euphoria is not universal and Korea Financial Investment Association data shows six South Korean brokerages stopped margin lending this month, after loan values hit a record 21.6 trillion won ($19.3 billion) this week.

"Anymore lending to ants would go against the capital requirement ratio for brokerages," said Kwak Sang-jun, a stockbroker at Shinhan Investment Corp in Seoul. "No-one expected the rally would be this explosive, and trading demand from retail investors would grow this explosive."

The retail phenomenon is widespread across Asia, where small-time traders have long played an outsized role, especially in markets such as South Korea and China. But investors are becoming younger, much more leveraged and influential.

In Thailand, small investors known as "moths" piled into local cannabis-related stocks on Thursday in anticipation of regulatory changes by the government there. In Hong Kong, retail investors borrowed more than $50 billion to buy shares in Chinese video sharing app Kuaishou Technology's float.

And in Australia and Japan, heavily shorted stocks are surging as small investors try and emulate the squeeze that has driven GameStop shares up 17-fold in little more than two weeks.

GAMESTOP KEEPS GOING

GameStop's global impact is the latest manifestation of a day-trading mania driven by amateur investors that is boosting the price of assets ranging from crypto-currencies to new stock market listings.

The struggling chain has seen its share price rise from $18 to a record $483 on Thursday within days. Its $28 billion market capitalisation exceeds about half the companies on the S&P 500 and the retailer has become the poster-stock for coordinated small-investor buying, marshalled over online forums such as Reddit.

The aim is to inflict pain on big hedge funds who had bet it would struggle and its stock would fall. However, regulators and clearing houses have fought back, controversially limiting investors' share trades.

The popular online US brokerage Robinhood and other retail brokers restricted trading earlier on Thursday in a number of companies - including GameStop. That sparked chaos and anger among clients as well as a class-action lawsuit accusing it of market manipulation. 

In a bid to restore its maverick reputation, Robinhood said it would allow trading in those securities to resume on Friday.

That reversal followed Robinhood's scramble to shore up its financial position by drawing down several hundred million dollars via a credit facility with the JPMorgan, Goldman Sachs, Morgan Stanley, Barclays and Wells Fargo banks.

Similar scenes have been played out in Asia. And in Australia, funeral operator InvoCare, salmon farmer Tassal and poultry producer Inghams, all of which have short interest levels higher than 8% according to regulatory data, leapt to multi-month highs.

Japan's most shorted stock, telecom equipment maker Anritsu Corp, touched a two-decade high.

In China, where investors are more familiar with the swings and roundabouts of a market in which fickle retail buyers command price moves, traders were admiring of the role adopted by US retail investors but said that such stock volatility would trigger action by Chinese regulators.

While GameStop's stock ended Thursday’s session down 40%, puncturing hopes of the supporters of the Reddit-based David in its duel with the hedge fund Goliath, the battle is far from over, say analysts.

“The retail horde are not going anywhere, and may have no day jobs,” Michael Every, a global strategist at Rabobank, said. “They have been defeated here, but can pile into any stock or asset they choose.”

With reporting by Reuters

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Asia could be next as Reddit squeeze on hedge-fund shorts goes global

Reddit short selling GameStop China Korea Australia Asian small investors japan