Much has changed since 2020 when meme stocks caught the imagination, driven by social media platforms. Raw capitalism went viral for a generation uninitiated in the ways of Wall Street.
I recall a colleague rushing into my office telling me how easy it was to make instant profits and urging that we let readers in on the secret.
Since then, Reddit, favourite platform of meme stock enthusiasts, has listed on Nasdaq and been given a valuation of £7.4billion.
That is about twice the price that Czech sphinx Daniel Kretinsky wants to pay for Royal Mail.
Robin Hood, the broker favoured by meme stock devotees because of its ‘no commission’ structure, also floated and is worth £15billion, which is three times as much as the popular UK investment platform Hargreaves Lansdown.
Viral capitalism: After meme-stock folk hero Keith Gill posted a screen shot of suggesting he had taken a £93m holding in GameStop the stock of the video games retailer rocketed by 90%
What hasn’t changed is the ability of Roaring Kitty, the Reddit account favoured by meme-stock folk hero Keith Gill, to move markets.
After Gill posted a screen shot suggesting he had taken a £93million holding in GameStop shares plus a big options bet, the stock of the video games retailer rocketed by 90 per cent. It ended Monday trading 21 per cent up.
All of this didn’t suddenly happen. Market professionals may well have been alert to the fact that the number of open option contracts in GameStop had rapidly climbed from just 15,000 on May 19 to 145,000 by the end of May.
Number crunching by Refinitiv suggests that a buyer of 120,000 of those options would have been showing a profit of £43million by Monday evening.
All this may appear to be good sport with ordinary social media enabled citizens enjoying the same easy rewards as hedge funds. It’s not quite as simple as that.
The job of financial regulators is to maintain market hygiene so no single investor, or group of traders, is able to manipulate trading at the expense of others.
Roaring Kitty’s antics have not gone unchallenged. The E*Trade platform, run by Morgan Stanley, is questioning whether Gill and others have been pumping up no-hoper stocks such as GameStop for their own benefit. It is considering removing dealing privileges from meme stock influencers.
The Securities & Exchange Commission, the Wall Street enforcer, also is reported to be reviewing trading patterns before, and around the time, of Gill’s social media posts.
In spite of the portrayal of Gill as simply a gifted amateur, it is noted that he holds several stock trading licences and a former employer MassMutual agreed to pay a fine in 2021 as a result of Gill’s activities.
As the Americans say: ‘There ain’t no such thing as a free lunch.’
Bottom fishing
The notion that the London Stock Exchange is engaged in some kind of race to the bottom by listing Singapore-based fast fashion group Shein is a bit rum.
Yes, allegations of human rights abuses in Shein’s Chinese factories are a source of concern.
But there is a better chance of addressing such charges in the City, where there is a strong tradition of environmental, social and governance (ESG) investing, than if the listing were to be driven offshore to Hong Kong instead.
However, London’s ESG rules are not applicable in every case, as can be seen at £54billion heavyweight BAT, which would have been driven offshore years ago.
As tobacco sales fall away, BAT has been investing heavily in vapes and other smoking alternatives. It is not always easy going.
BAT has just lowered prospects for revenue growth in the huge American market because of a surge in sales of illegal disposable vapes. Fastidious asset managers have a choice when it comes to Shein.
Don’t subscribe.
Green Mission
A fascinating battle is taking place in the lower reaches of the AIM market.
Marketing outfit Brave Bison, run by brothers Oli and Theo Green, sons of former media mogul Michael Green, are seeking to buy competitor Mission Group which is declining to open its books and allow due diligence.
The resistance is a bit of a mystery given the target company has an equity value of £25million but carries debts on its books estimated at £27million.
Doesn’t look like a recipe for longer term survival.