Last Monday, I wrote about how a marauding group of retail investors on social media “squeezed” hedge funds on the equity markets front by pushing up shorted stocks like loss-making video game vendor GameStop and cinema operator AMC Entertainment.
I also warned that this “game” is not over.
Well, I was right.
This time, the “Reddit raiders” took on the commodity market. More specifically, they homed in on the silver market, causing a “silver squeeze” by pushing up the price of the metal to its highest level in almost a decade.
Here’s what happened.
A Reddit sub-group called WallStreetBets sent out a call to action to buy silver on Jan 28, a Thursday. Retail investors piled in en masse and kept doing so on Jan 29 and through the weekend. By Jan 31, most silver bullion dealers were outright sold out.
And by last Monday, silver had soared to an eight-year high at over US$30 an ounce.
Despite the volatility, the S&P 500 ended last week at a record high, fuelled by optimism over an economic and earnings recovery, fiscal stimulus, and expectations that the Covid-19 vaccine roll-out would finally wipe out the virus.
In Singapore, the Straits Times Index held its ground, closing a marginal five points higher for last week at 2,907.11 points.
Watch-listed seafood supplier Oceanus’ stock hit a multi-year high amid speculation that the Redditors may be targeting it for a buy. The stock briefly hit an eight-year high at 6.9 cents last Wednesday, before closing at 6.3 cents last Friday.
Diamond technology company Sarine Tech attracted interest as a business seen to be benefiting from a significant pickup in demand for diamonds on the global market.
On the other hand, Myanmar-focused conglomerate Yoma Strategic plunged 25 per cent to a low of 20.5 cents last Wednesday, in the wake of the military coup last Monday. There is fear that the company’s businesses in Myanmar could be severely disrupted by an extended period of uncertainty now that the military has taken back control from the civilian government led by Ms Aung San Suu Kyi.
The week ahead will see results from the likes of DBS Bank, Manulife, Vicom, Genting Singapore and Far East Hospitality Trust.
United States consumer price index and job openings data will also be scrutinised.
While fear of volatility from more Reddit raids lingers, the upward bias for the market remains intact. One reason for this is the dominance of institutional money.
DBS highlighted an EPFR Global report showing that at end-2000, retail money accounted for 66 per cent of equity funds, while institutional money accounted for the remaining 34 per cent. But at the end of last year, retail money accounted for only 29 per cent of global equity funds, while institutional money accounted for 71 per cent.
Also, the “Reddit army” of retail raiders is focusing on weak single security names with heavy short positioning by hedge funds, not quality names.
Still, retail investors, backed by huge savings, will be an influence on the market. Broking houses here report huge numbers of trading account openings.
The flood of liquidity and low interest rates are also underpinning the equity market.
DBS chief investment officer Hou Wey Fook advises investors to focus on Idea (innovators, disrupters, enablers and adapters) stocks and biotechnology.
“These will rise in a world being transformed by the digital economy,” he said.
In short, invest wisely. But also be nimble.
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