The attention focused on a small group of retail investors interacting on the online forum Reddit has once again defined the share performance of some of the biggest companies in London, although their influence has been questioned by some experts.
The Redditors are said to have turned their eyes to silver on Monday, pushing the commodity skywards and sending shares in the two biggest silver miners listed in London up sharply.
Fresnillo had gained nearly 17 per cent at around 1pm, while Polymetal was up just under 8 per cent, as spot silver prices rose by 9%.
It is the latest fallout that has reached the stock markets from online forum Reddit, where small time investors have been successfully outmanoeuvring professional Wall Street investors.
The Redditors, who post under WallStreetBets, rallied around GameStop’s under-pressure shares, dealing a bloody nose to some professionals.
Short selling
They had spotted that GameStop’s shares had been heavily shorted by hedge funds, who expected its share price to fall even further.
Short selling, or shorting, is effectively a bet that the price of a company’s shares will fall.
But if the share price instead goes up, an investor will lose money.
This is what happened with GameStop. Spotting that a company which holds a lot of sentimental value to many was heavily shorted, Redditors piled in and drove up the price, squeezing short sellers, and forcing them to buy back shares at a higher price.
It was a move likened by some to anti-establishment movements such as Occupy Wall Street a decade ago, or the voters who propelled Donald Trump to the White House in 2016.
“People were willing to take a risk on Trump and now they’re willing to take a risk in the markets,” entrepreneur William LeGate told US broadcaster CNBC last week.
“A lot of people just want to see the world burn right now, and they’re enjoying watching it happen.”
Market manipulation
The news has also raised questions over whether the Redditors might be breaking rules around stock market manipulation.
Bart Zhou Yueshen, an assistant professor of finance at business school INSEAD said a crime would be hard to prove as the Redditors were merely discussing their investments.
“In order to establish manipulation, you would need to establish some kind of malintention in the first place,” he told CNBC. “That is, in my opinion, not so obvious in this case.”
He also raised questions about the narrative around the power of the Redditors, saying more traditional investors are probably also involved in the efforts to target shares such as GameStop.
The sentiment was echoed by Connor Campbell, an analyst at Spreadex, who spoke on Monday about the effect on silver, and London’s miners.
“There is also speculation that Reddit isn’t necessarily behind this latest move,” Mr Campbell said.
“Though there are pro-silver posts on WallStreetBets, the ‘top post’ on the subject is against the trade.”
He added: “Essentially, there doesn’t appear to be the same level of agreement, co-ordination or interest in the silver trade on WallStreetBets as there was, and still is, in GameStop. However, the cat might be out of the bag, with the retail trader revolution potentially now going beyond the pages of Reddit.”
