Korean Stock Market Sees Sharp Drop in Wake of the GameSpot Saga

It is amazing that a retail U.S. video game company GameStop could have a major effect on the South Korean economy, but it has:

Yet, despite media hype about imminent bankruptcies of short-selling hedge funds and the historic win of small investors against Goliath hedge funds, statistics by S3 quoted in a recent CNBC report showed that most short-selling positions held by hedge funds are still intact, holding onto their bearish perspective on the stock’s future. 

A swarm of retail investors gathered on social media ― through Reddit’s WallStreetBets and Twitter messages ― expressed their anger over the unlevel playing field as evidenced by Robinhood and other U.S. brokerage firms’ unexpected suspension of the stock’s trading during the last two trading sessions last week. 

While U.S. regulators and politicians announced their plans for investigation and hearings on the matter, whatever will be the final result of the battle ― plunge of the stock price or short sellers’ major losses from a possible short squeeze ― one thing for sure is that now could be the start of a watershed moment.  (………..)

There was a massive selloff of Korean stocks in the KOSPI index at Friday’s session, net-selling 1.4 trillion won ($1.25 billion) worth of stocks, dragging down the nation’s benchmark index. 

“At this point, it’s very hard to predict how this event will turn out, as no one can be sure about future directions by countless retail investors on a global scale and numerous hedge funds’ moves as well,” Lee Hyo-seok, an analyst at SK Securities, told The Korea Times. 

“One thing for sure is that the market volatility is bound to increase for the time being; some say this would bring a major financial crisis, but as of now their assertion lacks substantial or concrete evidence at all. Thus at this point, we can only say the market uncertainty is growing,” the analyst said cautiously, adding that foreign money hasn’t yet escaped from ETFs following the Korean indexes. 

Other stock market researchers say while it’s too early to say whether the bubble will soon pop, investors’ investment sentiment preferring risky assets will be somewhat wavered. Some market experts say concerns about the increased volatility would bring financial authorities’ earlier tapering measures, which could add more volatility in the end.

Korea Times

You can read more at the link, but the GameStop saga has really exposed how the hedgefunds have gamed the financial system and it will be interesting to see how this unfolds.