GameStop-Driven Wall Street Sell-Off Hits International Markets
A negative assessment of the US economy and an unprecedented investment war has spilled into Asia and Europe.
European stocks opened lower on Thursday following an overnight sell-off on Wall Street that weakened equity markets globally.
The Dow Jones closed down 2% on Wednesday, the index’s biggest single-day fall since October. The slump came shortly after a pessimistic assessment of the US economy from the US Federal Reserve, and amid a market war between activist retail investors and hedge funds in parts of the market. The S&P 500 also lost 2.5%.
Asian stocks slid shortly after the Wall Street sell-off, with Japan’s Nikkei falling 1.5% -- its own steepest drop since October – and South Korea’s Kospi fell 1.7%. Chinese blue-chip stocks also lost 2.7%.
Losses were mirrored in European stocks when markets reopened, with the FTSE 100, CAC 40 and DAX sliding 1.5%, 1% and 1.7% respectively.
Though impactful, the Federal Reserve’s pronouncements on Wednesday were overshadowed by activity around so-called “Reddit Stocks” – equities being boosted by a wave of investors aiming to lift stocks that hedge funds are attempting to short, causing immense losses on Wall Street.
The focal point of the war is GameStop, a high street video game retailer that was targeted by short-sellers and then saw a flurry of trading activity as investors flocked to it. The company’s shares jumped 134% on Wednesday alone and are currently valued at $347, having been down as low as $17 earlier in the year. Cinema chain AMC has also been boosted by the movement’s attentions, gaining 300%.
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“The whole business is seen as a trump for the little traders, the Robinhood account holders who use Reddit to get their financial information,” said David Morrison, market analyst at Trade Nation. “On the other side is the Wall Street players who would happily see GameStop go out of business and people lose their jobs if it brought from a profit.
“Of course, life is never that simple, and the GameStop story is far from over as traders hunt out other heavily-shorted stocks. But it’s a salutary tale of our times and a timely reminder of the dangers that can lurk when shorting individual stocks."
