The "Game Stop" and "Reddit" phenomenon in the US

2 Feb 2021 Written by: Redaksi OCBC NISP

In the past week, the US stock market has experienced quite high volatility,

influenced by the phenomenon that occurred in the stock price of a game stop equipment provider company, Game Stop, which increased more than 1000% in the past month.

Starting from several securities companies (hedge funds) that have the view that Game Stop's stock price is already expensive and is predicted to continue to fall (bearish) because it is considered to have difficulties in business growth due to the pandemic, then the hedge fund company sells shares. The problem arose when the hedge fund company took a short sell of Game Stop shares.

A stock communication platform, called Reddit, judged that what the hedge fund was doing was wrong, so it urged members in the forum to buy Game Stop shares massively, thus driving up the Game Stop stock price sharply.

The impact of the increase in Game Stop shares caused losses to several hedge fund companies that carried out the short sell, with a total of nearly USD 20 billion, or the equivalent of IDR 280 trillion in January 2020. In addition, market regulators including US Treasury Secretary Janet Yellen, stated has been closely monitoring the progress of this Game Stop stock transaction, and is reviewing policies to limit the negative impact on the stock market as a whole.

The steps that the regulator will take are considered to be applying tighter rules to the movement of the stock market in the US, thus encouraging stock investors to secure positions in the market, and negatively affecting stock prices during last weekend's trading.

Investment Strategy:

The Game Stop event triggers a sell-off by stock brokers who have positions on Game Stop shares and the like, causing volatility in the short term. This condition can be used to re-accumulate on stocks that have experienced a significant price drop. Some positive catalysts such as the momentum of US economic recovery, where the US economic growth was reported to have expanded by 33.4% quarterly, and 4% annually in the fourth quarter of 2020. This indicates an economic recovery amidst the ongoing pandemic. In addition, for the long term, the movement of the US stock market will still be supported by growth in corporate profits, in line with the plan to provide large amounts of stimulus by President Joe Biden's cabinet.

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