Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Why GameStop will never happen here
Unless you have well and truly been hiding under a rock for the past fortnight, you are likely getting sick of hearing about the whole GameStop debacle unfolding in the US, between some millennial Reddit users and just about the whole of Wall St.
Since the story broke the GameStop (NYSE: GME) share price, which was at only US$19 at the beginning of 2021, reached its highest point of US$347 within a couple of days in late January. It has fallen like a stone since, and is now trading at the price of US$50.
Firstly though, let’s spare a thought for the Australian mining company GME Resources (ASX: GME), which trades under the same code “ticker,” and fell victim to mistaken identity when its price shot from 6.5 cents to 8.5 cents nearly overnight. As a result, GME trading was halted by the ASX and it was forced to explain the changes with no announcements.
While there is no denying the interest in seeing hedge fund managers and politicians fighting with millennials who have caused so much stir from the comfort of their couches, what does it mean for not only GME Resources but Australian investors – and is this something of which we could see more?
Whether you are on the side of the likes of Elon Musk and Mark Cuban urging the Reddit army to take on the fight against the “upper end of town,” or are not happy with trading platform Robinhood’s ability to call a stop to the action simply because it was no longer benefiting hedge funds (which pay Robinhood a lot of money for the data it collects.)
But will this be something that we should get used to or will it eventually go back to business as usual not only overseas but also here in Australia? Dr Angel Zhong, senior lecturer in finance at RMIT University in Melbourne, thinks that while two years ago you would never have guessed this would happen, we are now in 2021 and anything is possible. She also warns Australian investors on low-cost trading platforms that could be impacted by this.
Bringing the action back closer to home is a related issue of which Zhong says ASIC should be warning retail investors to be cautious – copy trading and social trading.
Copy trading, which is offered by some sites in Australia including e-Toro and AvaTrade, is a tool where newer investors can as the name suggests copy a trade made by those more experienced, and piggyback off their successful investment moves.
“Social trading,” on the other hand, is very similar to Reddit – a platform where investors discuss topics and current changes to the market. This is all fine until what we saw with GameStop, when a topic took off and gained unprecedented amounts of momentum from users. There are plenty of these platforms and sites popping up here in Australia, with not only experienced investors discussing it on sites such as HotCopper, but also social media pages with people from all ages and backgrounds jumping online to share their opinions on pages such as “ASX stock tips.”
These platforms have seen a surge in activity from new members throughout the pandemic, as people found themselves sitting at home with not much to keep them entertained, and saw the volatility of the market as a buying opportunity.
Greg Yanco, executive director of markets at the Australian Securities & Investments Commission (ASIC) mirrors Zhong’s comments, but appears not to see too much cause for concern. Yanco says ASIC is not too concerned with the recent events unfolding in the US coming down under, and a key reason is simply due to the much stricter regulations ASIC applies.
Short-selling is regulated by the Corporations Act 2001 and the Corporations Regulations 2001, while the reporting guidelines can be found in the Regulatory Guide 196 Short selling. If stockbrokers are short-selling, they are subject to market integrity rules designed to reduce the ability to create a disorderly market.
There are two scenarios where disclosures surrounding short-selling are required in Australia. The first is short-sale transaction reporting and the second is “short position” reporting.
A short sale transaction is the daily volumes sold on the market and the short position reporting is where the quantity that is being sold is less than the quantity the person has an obligation to deliver.
As readers would expect Yanco confirmed that ASIC is monitoring many of these forums that are becoming popular in Australia, not necessarily to intervene but also for a paper trail if or when something suspicious occurs.
