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$ 5 Billion Hedge Fund Loss Due To ‘Gambling Crash Stop’
On the 28th (local time) on the New York Stock Exchange in the US, GameStop closed the deal at $ 193.60, down 44% in one day. In addition, the share prices of the cinema chain AMC Entertainment Holdings and the Canadian smartphone maker Blackberry fell 56% and 41%, respectively.
This is because ‘Robin Hood’, the most widely used stock brokerage platform by individual US investors, restricted trading for one day. However, when Robin Hood explained, “We plan to buy GameStop shares on a limited basis starting the following day,” “We will be able to monitor the situation and adjust as necessary.”
Currently, around 7 p.m. Korean time, Gamestop is trading at $ 392, a 102% increase in after-hours trading. AMC and BlackBerry also registered increases of 60% and 17%, respectively.
Additionally, the stock price skyrocketed when the ‘New Concept Energy’ was discussed on Reddit’s ‘Wall Street Bat’, prompting the ‘Game Stop Issue’ on this day. On this day, New Concept Energy’s stock price ended at $ 25 per share. The shares, which were $ 2.35 a share the day before, are up 963% in one day.
Bloomberg said: “When Gamestop’s operations were restricted due to excessive volatility, investors found new action.” “A company with five employees that extract negligible amounts of crude oil and natural gas from Appalachia is a private US investor. It also reported that it was the leading role in the” investment frenzy. “
As the share prices of some stocks skyrocket, the losses of hedge funds that have been sold short on the stocks snowball. Hedge funds like Citron Research and Melvin Capital faced short selling as the share price soared when individual investors began buying Gamestop earlier this month. However, even after that, the buying trend of individual investors continued, so the share price soared and hedge funds finally began to contract.
As a result, Melvin Capital ended the short sale contract with a loss of more than $ 3.7 billion (about 4 trillion won), which is 30% of its total assets ($ 12.5 billion), in three weeks. this month. According to S3 Partners, it is known that this year, the short selling forces posted more than $ 5 billion (5.6 trillion won) of losses as the game stopped shorting.
Global Stock Market, Hedge Fund Margin Call → Deleveraging Concerns
The market is wary of the possibility that this situation acts as a kind of “butterfly effect” on global stocks. Hedge funds that received a ‘margin call’ (request to cover margin shortfalls for lost futures contracts, etc.) due to a loss from short selling, such as game caps, may sell their shares at a large scale to raise cash. This is due to concerns – that is, the concern about massive deleveraging is spreading across the market.
In fact, the overall global stock market shrank. On this day, the domestic KOSPI closed the deal at 2,976.13, 92.92 points (3.03%) less than the previous day. It was only 17 days after the last sixth (2968.21) that the closing price-based index fell below the 3000 line.
On this day, the Asian stock market in general did not show any success. On this day, Japan’s Nikkei 225 index (average Nikkei share price) closed at 23.7663.39, 534.03 points (1.89%) less than the previous day. China’s Shanghai Composite Index and Hong Kong’s Hang Seng Index are down 0.65% and 0.94%, respectively. Taiwan’s Gawon Index slumped 1.8%.
It is analyzed that a large-scale sale was opened, mainly by affiliated securities companies abroad, as investor sentiment fell as US stock index futures fell. At around 7 p.m. KST, Dow Jones Industrial Average futures are trading at 3,254.0, down 0.83% from the previous day, while S&P 500 futures are trading at 3,741.38, down 1.00. % less. Futures on the Nasdaq 100 Index fell 1.44% to 129.62.
In response, the United States Congress and the Securities and Exchange Commission (SEC), the securities regulatory authority, declared the intervention. In a statement on the day, the SEC said: “We are cooperating with related organizations for investor protection and efficient market management” and “we are actively monitoring the situation.”
He said he plans to hold hearings on the House Financial Services Commission and the Senate Banking Commission. Sen. Elizabeth Warren (D-Massachusetts), who is called ‘the grim reaper of Wall Street,’ made a statement about the stoppage situation that day, saying: “Hedge funds, private equity funds and Wealthy investors have been playing with the stock market like private casinos, and only others have criticized the cost. “
However, experts predicted that the confrontation between individual investors and hedge funds over game stops will be only noise in the short term. Park Beomji, a researcher at Meritz Securities, said: “The recent rise in share prices due to short-term declines led by individual investors in the US market is just an ‘exposure.’ There is none.”
Seong-geun Kim, a researcher at Korea Investment & Securities, explained: “The prospect that the battle between individuals and hedge funds continues is taking the market to extremes.” “It is not a factor that shakes the general trend, but it is enough to be a noise that increases temporary volatility.”
