TOKYO/HONG KONG -- The stock market frenzy surrounding U.S. video game retailer GameStop has spilled into Asia, with shorted stocks mirroring the surge on Wall Street and some brokerages restricting trades.
Retail investors in the Asia-Pacific region from Sydney to Kuala Lumpur are drawing inspiration from the GameStop rally to bid up stocks that hedge funds are betting will slump. While not on the scale of Wall Street, amateur investors are mimicking their U.S. peers, opening discussion boards on Reddit to synchronize market moves.
GameStop shares have rallied as much as 2,450% from their close in 2020 as small investors piled in and forced hedge funds to lose billions on their short positions.
Short selling refers to borrowing shares in a company to sell with the expectation of being able to buy it back more cheaply -- an investor's way of expressing pessimism about the company's prospects. A short squeeze occurs when the stock continues to rise, forcing the shorting investor to buy back at a higher price and lose money.
This week in Japan, telecom equipment maker Anritsu -- one of the most shorted stocks in the Tokyo market -- reached levels not seen since 2001. Other shorted stocks like candymaker Morinaga and airline ANA Holdings also jumped on Thursday.
China Literature -- one of the most shorted Hong Kong stocks with 22% short interest as of Jan. 15, according to regulatory data -- has surged 15% in the past two days. Sun Art Retail has added 5% this week, while beverage maker Vitasoy touched an eight-month high on Thursday. The two stocks had short interest of almost 10%.
In a new Reddit forum called BursaBets created on Thursday in Malaysia, discussions centered on propping up glove makers that had dropped. Forum participants complained that share prices fell despite a rise in profits. Top Glove surged 8.4% in Kuala Lumpur.
Sydney-listed mining company GME Resources, which shares a similar stock code to GameStop, soared as much as 60% on Thursday. The company said it did not understand the huge stock move, reasoning that it could be because of the stock tickers' similarity. Trading its shares was halted, with the stock losing a fifth of its value on Friday after trade resumed.
Similarly, funeral home operator Invocare and travel company Webjet, among the most shorted Australian stocks, surged on Thursday but ceded ground on Friday.
Meanwhile, stocks that have benefited from the coronavirus outbreak and have attracted investor money on hopes of potential growth have fallen in recent days.
Shares in online medical platform M3 and CyberAgent, whose games have been popular during the pandemic, dropped over 10% this week in Tokyo.
Tomoichiro Kubota, a senior market analyst at Matsui Securities in Tokyo, said hedge funds were likely being forced to shrink their long positions in some stocks. Hedge funds commonly use an investment strategy known as long-short, where a fund manager can sell short as well as buy long.
"Hit by the short squeeze, these hedge funds can't help but reduce their exposure to long-term investments in order to lower the overall risk," Kubota said.
Hedge funds got a brief reprieve after some online brokerages used by the retail investors, including Robinhood Markets, prevented customers from purchasing more shares of companies such as GameStop. Robinhood will allow limited buying from Friday, it said.
Online brokerages in China and Hong Kong -- including Tencent-backed Futu and Up Fintech, an affiliate of smartphone maker Xiaomi -- also barred clients from adding new positions in GameStop and AMC Entertainment, though Futu later restored full trading, warning: "Please be aware of unanticipated fluctuations and risks of market volatility."
Japan's benchmark Nikkei Stock Average fell sharply on Friday, closing down over 500 points, or 1.8%, as investors continued to fret over possible market fluctuation in the U.S. and its spread to Asia. Japan's volatility index rose sharply, indicating that investors are turning cautious.
On Friday, Hiromichi Mizuno, former CIO of Japan's Government Pension Investment Fund and now a board member of Tesla, weighed in on the controversy around the short squeezes and the subsequent trading restrictions.
He tweeted: "Funny to observe those who blindly believe in the benefit of market liquidity and argue against any restriction on short selling are now lobbying for restriction on retail buying to squeeze them."
Mizuno has been a longtime advocate against short selling, a practice that has plagued companies like Tesla in the past. During his stint at the GPIF -- the world's biggest pension fund -- Mizuno suspended stock lending from its foreign equity portfolio for short-selling purposes.
The move angered many hedge funds but Mizuno emphasized the importance of long-term investments.
Tesla founder Elon Musk seems to hold similar views, tweeting on Friday that "shorting is a scam legal only for vestigial reasons."