Singapore market unlikely to mirror GameStop frenzy: market watchers

FOLLOWING the epic short squeeze in GameStop, retail investors elsewhere have set their sights on heavily-shorted stocks outside of Wall Street. But given the small local market and low short-selling interest here, the Singapore market is unlikely to mirror the frenzy seen in the US, say market watchers The Business Times spoke to.

There were exceptional conditions, which are unlikely to be seen in Singapore, that led to the GameStop saga.

CGS-CIMB market strategist Jeremy Ng said: "Shorting in the Singapore market is not really a prevalent strategy to begin with. Therefore, you don't see a list of stocks with high short interest, making the short squeeze almost impossible."

Simon Teo, senior strategist at Phillip Futures pointed out that GameStop ended up in the crosshairs of the Reddit crowd because they saw that the video game retailer's percentage of short trades on it - or short interest - stood at 140 per cent.

In Singapore, however, stocks are not overly shorted.

Genting Singapore, for instance, was the most heavily shorted stock by value on Feb 2. Yet, the percentage of short trades on it is a mere 0.2 per cent.

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"These percentage numbers would not attract the same crowd of retail investors looking to execute a short squeeze," said Mr Teo.

This is unlike in GameStop, where there was an extreme imbalance in the supply and demand of shares, putting the stock in a position susceptible to a short squeeze.

CGS-CIMB market strategist Jake Chow said this comes as the options market in the US had soaked up the limited supply in their hedging process, along with coordinated efforts from retail investors buying options and outright shares. This was subsequently exacerbated by hedge funds buying more shares in a bid to cover their losses.

This was only possible due to the deep US stock markets, where stocks are widely held and traded in high volumes, said Terence Wong, chief executive of Azure Capital. This is further supported by the emergence of trading platforms such as Robinhood, which have made trading more accessible than before, allowing essentially anyone to trade, he added.

Meanwhile, stocks that are considered to have relatively high short-sell activity in Singapore such as Genting Singapore, Sembcorp Industries, Singapore Airlines and SingPost, hardly budged or reacted to the short squeeze frenzy on Wall Street, said CGS-CIMB's Mr Ng.

GameStop was also made a target as hedge funds that shorted its shares had made their positions known to the public.

"But in Singapore, we dont see any single big holder of short positions in a single counter, or at least there is no public report on this, so it's more difficult to be targeted by Reddit," said Phillip's Mr Teo.

While retail investors here have also taken to Reddit in a bid to bet on where the money is headed, CGS-CIMB's Mr Ng pointed out that it cannot compare to the Reddit community r/WallStreetBets, which has millions of users that can "move the market collectively and force a short squeeze effectively".

Inspired by Wall Street's army of retail investors on Reddit forum r/WallStreetBets, a new Reddit community r/Sgxbets was formed on Jan 28 and has since garnered close to a 1,000 members.

The Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) had on Tuesday flagged possible market misconduct activities related to trading in securities incited by online discussion forums and social media chat groups to engage in "pump-and-dump" schemes.

MAS and SGXRegCo said in a joint statement that they have noted investor interest in Singapore in recent activities in US markets relating to stocks such as GameStop, AMC Entertainment Holdings and BlackBerry.

"Discussions in online websites and platforms suggest the possibilities for similar speculative activities in the Singapore stock market," they said.

Azure's Mr Wong had noted that the authorities here take on a more active role in policing the stock exchange, making it unlikely for retail investors here to be able to pull off what Wall Street did. Stocks that register unusual share price movements will also be swiftly queried, he added.

A majority of retail investors have also become “more discerning over the years and are not drawn by manipulation of stocks”, said Woon Kok Yan, head of risk management at OCBC Securities.

Even though attempts to trigger a "Reddit rally" had gained some traction elsewhere, they were minimal when compared with GameStop. Shares of the video game retailer rose to a high of US$347.51 on Jan 27, up 20 times since the start of the year.

But CGS-CIMB's Mr Chow said that short squeezes are usually short-lived.

Share prices will revert to their original trajectory as fundamentals (earnings and cash flows) still rule over the mid-long term, unless there are meaningful changes in the business, he said.

Shares of GameStop have since tumbled 60 per cent to US$90, though it is still up about 421.7 per cent year to date.