In the end, all sides lose, not just hedge funds, according to the RBI experts.
For over a week, small investors who organize themselves on social platforms under the name “WallStreetBets” have been fighting hedge funds with a hype about the Gamestop share.
One of the goals is to denounce the methods of these hedge funds and disrupt their market power. The RBI analysts, however, see more harm than good in this action and are leaning on long-term equity markets.
“Most of the damage, however, is the public's loss of reputation of the stock market. The stock in particular is repeatedly misused – also in Austria – for ideological misinterpretations,” write the chief analyst of Raiffeisen Bank International (RBI), Peter Brezinschek, and Christian Hinterwallner, head of the bank's equity research, in a market commentary.
The share as a form of long-term company participation is ideal for raising equity and, especially in times of crisis, equity is the most important risk buffer.
Due to the short-term run on the Gamestop shares, however, everyone involved would lose and not just the hedge funds, who have bet on falling prices at Gamestop with short sales and are therefore sharply criticized by the supporters of WallStreetBets. “Both combine short-term pursuit of profit. The long-term component of stocks falls by the wayside.
How much market abuse and market manipulation there is behind the speculative attacks will certainly have to be clarified by the SEC, the American securities regulator, “said the analysts.
The US Treasury Secretary Janet Yellen has scheduled a meeting with the US Securities and Exchange Commission (SEC) for today, Thursday, to discuss how to proceed in the Gamestop case. Also invited are representatives of the futures market authority, the Commodity Futures Trading Commission and the Fed, as well as their New York branches.
Hedge funds have already suffered massive losses in the battle for the Gamestop share. As the latest data from data provider Ortex shows, the losses of hedge funds have totaled $ 12.5 billion since the beginning of the year. The short sales, with which hedge funds often work, are not “automatically good or bad”, but often “put a finger in a (fundamental) wound,” according to the analysts.
At Gamestop, expectations are not looking too rosy at the moment. The company is likely to write massive losses until 2022 and, according to the business plan, will not make a net profit again until 2023, according to the RBI.
Accordingly, the small investors could soon be left behind, because the current price of the share is not justified by the company's expectations. “In the long term, earnings growth and the business model speak for the share development. Not swarms of social media or short-selling orgies,” the analysts write.
Loss of confidence possible
Free brokers like Robinhood, which came under criticism from small investors after they imposed order stops for Gamestop at short notice, could at least suffer a loss of confidence, according to the RBI analysts. The purchase stops were primarily due to the fact that more liquidity had to be deposited with the clearing houses as security for the rapidly increasing trading turnover.
Robinhood had to raise more than $ 3 billion in equity in the following days, but still severely restricted the purchase of Gamestop shares. That brought them criticism from politicians.
The analysts can also gain positive results from the battle for Gamestop shares. This will rekindle the discussion about market abuse and market manipulation as well as the interest of more and younger people in the stock market.
