Last week, the GameStop (GME) short squeeze frenzy gave rise to a battle between new-generation retail investors and hedge funds and big investors. To safeguard the interest of big investors, brokerages led by Robinhood stopped retail investors from buying more GME shares and only let them sell the shares. The move has prompted a backlash. It all began when Citron, an investment newsletter run by short sellers, predicted that the price of GME would drop, but Reddit users later discovered the short-selling loophole. Chanting the mantra “You only live once”, they lashed out at Citron. Such is how the anti-establishment, anti-Wall Street and anti-deep state operation came about.

The value of free market lies in a lack of intervention. If it is not wrong of big investors to engage in short selling, why is there a problem when they get squeezed? Is the money of the big investors more precious than that of individual investors? Under the same set of rules of the game, big investors have an edge over retail investors because they have an abundance of funds. Reddit netizens’ groundbreaking move against the big investors has caused several funds to lose billions of US dollars. Then brokerages decided to intervene. Political and economic officials also made the rare move to enter the fray, claiming that maintaining order was of utmost importance and that it was necessary to take actions to curb “online rioters” and market disruptors.

Short-selling has always been a common tactic of big players in the investment market. Before short-selling institutions release short-selling reports, they usually declare their short position. When the price of a stock plummets, retail investors flee the market. Even a short-selling report turns out to be inaccurate, there is nothing retail investors can do. In the controversy surrounding GME, a Reddit netizen was spot-on in pointing out in an open letter that during the financial crisis in 2008, millions of people suffered but big Wall Street investors went unpunished, and terrible and illegal financial decisions were rewarded. The Reddit user also criticized the mainstream media for yielding to Wall Street because of self-interest, and for demonizing Reddit netizens who were described by the media as market disruptors.

A few days ago, CNBC interviewed Chamath Palihapitiya, an investor who went long on GME. He was even more direct. Commenting on individual investors pushing up GME’s price and beating up the big investors, Palihapitiya said hedge funds try to push stocks around all the time. “To a normal person that doesn’t make any sense. But to a Wall Street mathematician, that’s the game that’s been played. And that game came undone,” he noted. He also voiced doubts over what he deemed a double standard on retail investors and big investors. He questioned why Wall Street investors whose trading strategy is not driven by fundamentals are free from criticism while individual investors adopting the same strategy are lashed out at. Financial institutions have been engaging in unlawful practices all these years but no one has batted an eye. Palihapitiya asked why these institutions do not have to be held accountable while retail investors need to take responsibility over something they are not responsible for.

It is not a question of supporting who and not supporting who. It is a matter of disapproving of big investors’ sore loser approach. They simply refuse to be defeated. The crux of the issue is that since everyone is playing by the same set of rules in the game, they need to respect the spirit of the game. When 140 percent of GME’s shares were sold short by big investors, how come regulatory bodies have not condemned their operation and yet it was wrong of individual investors to push up the share price and force funds to close their position without violating any rule? Retail investors who are willing to buy at a high price have to bear risk themselves, don’t they?

The GME bubble will eventually burst. In the future, regulatory bodies are very likely to change the rules to safeguard the existing interests of big investors in the name of protecting shareholders. Conflicts between two generations and two factions of investors are set to deepen. According to the founder of Citron, when the company was founded, it was to be against the establishment and its missions were to protect individual investors and fight financial fraud. “But now we’ve actually become the establishment,” he said.

P.S.

My original idea for this article was to talk about short selling in Hong Kong. In the US, the securities regulatory authority releases figures on short selling every half month, whereas the Hong Kong Securities and Futures Commission publishes weekly data on the position of shares that can be short-sold and the amount of money involved in the short selling. I have compiled a table for readers’ reference. Ping An Insurance (2318) is the company with the largest number of shares for short selling, amounting to HKD73.3 billion. It is followed by Tencent (700) and BYD (1211), and the short selling turnover is over $10 billion. Last week, there were great fluctuations in the Hong Kong stock market. The short selling turnover might not be that high, but the number of short sold shares in relation to the total equity was relatively high.

For example, 96.58 million shares of Ping An Healthcare and Technology (1833) were short sold, amounting to 8.4 percent of the total equity, and the short position in China Literature is 7.8 percent of the total equity. When it comes to short squeeze, it makes more sense to focus on the short selling ratio rather than the short selling turnover. Among the 30 stocks on the list with the largest number of short sold shares, three have short selling shares that exceed 10 percent of the total equity. They are namely Haier Smart Home (6690), CITIC Securities (6030) and Weimob (2013).

Will a GME scenario be replayed in Hong Kong? Anyone who has witnessed how Hong Kong police confused short selling with selling would take the question as a joke.

(Stockwing, columnist)

Click here for Chinese version

We invite you to join the conversation by submitting columns to our opinion section: [email protected]

Apple Daily reserves the right to refuse, abridge, alter or edit guest opinion columns for accuracy, length, clarity, and style, and the right to withdraw and withhold columns based on the discretion of our editorial page editors.

The opinions of the writers do not necessarily reflect the opinions of the editorial board.

---------------------------------

Apple Daily’s all-new English Edition is now available on the mobile app: bit.ly/2yMMfQE

To download the latest version,

iOS: bit.ly/AD_iOS

Android: bit.ly/AD_android

Or search Appledaily in App Store or Google Play