The GameStop Corp (NYSE: GME) share market chaos seen in the US could spill over to the ASX in a serious way, according to one investor behaviour academic.
Finance headlines this week have been dominated by the phenomenal rise in the price of GameStop stocks. The surge was triggered with a coordinated buying effort from activist retail investors to send institutional short sellers broke.
The electronic games retailer started the year at US$17.25 but shot up to as high as US$483 before moderating last night Australian time. It's still sitting at US$193.60.
There is much debate in the United States as to whether this is legitimate activism against Wall Street shorting, immoral market manipulation, amateurs playing with fire, or all of the above.
Discussions about the short squeeze were reportedly had on Reddit then much of it was executed on popular trading app Robinhood, which provides $0 brokerage trading.
GameStop implications for Australia and ASX
The most direct Australian impact of the GameStop frenzy has been on the share price of GME Resources Limited (ASX: GME).
Sharing the same ticker code as the US retailer has meant it was the accidental beneficiary of some confused investors. The mining company was forced to put its stocks in a trading halt on Friday after it shot up 53% in less than 48 hours.
But aside from hilarious ticker confusion, RMIT University senior lecturer Angel Zhong reckons there could be serious downstream impacts in Australia.
Similar to Robinhood, low-cost gamified trading platforms like Superhero and eToro are now available for local investors.
"Copy trading is offered by some of the platforms, which is a form of social trading, and similar to the way Reddit traders have bought up GameStop this time," she said.
"In Australia, ASIC is concerned about social trading and has warned retail investors to be cautious about copy trading offered by low-cost trading platforms."
Social and copy trading could prompt a short squeeze attack in Australia similar to what's happened in America this week, warned Zhong.
"The GameStop Saga has also alarmed the short-sellers in Australia who may face a battle from retail investors," she said.
"There could be a price surge in the most-shorted Australian stocks such as Webjet Limited (ASX: WEB), A2 Milk Company Ltd (ASX: A2M), and Flight Centre Travel Group Ltd (ASX: FLT)."
How did it come to this?
Zhong said that the fact that this is even possible points to the rise of a uniquely modern phenomenon in the investment world.
"It… reflects the power of social trading, which refers to unmoderated investment advice provided via social platforms — such as the Reddit army in this case, investment channels on YouTube, share trading groups on Facebook, and influencers offering financial advice via TikTok."
"What are the hottest stocks among social traders in Australia as seen on Reddit and HotCopper? The buy now, pay later stocks are definitely among the hottest and the large surge in their price is partly related to retail trading."
ASIC scrutiny has somewhat scared off the local version of the US Reddit group that prompted the GameStop surge.
A moderator on r/ASX_Bets posted the following message on Thursday, according to the Australian Financial Review:
"As I'm sure you're all aware, there has been some minor business going on in the big daddy sub r/wallstreetbets… They were clearly incensed by a hedge fund… then it escalated. Then it escalated again. Now it's something else entirely," the admin wrote.
"A lot of people have decided to make posts here indicating they want to arrange a short squeeze … any post or comment attempting to co-ordinate or organize any type of 'market play' via the sub will be deleted and the user subject to a three-month ban."
