eBusiness Weekly
Kudzanai Sharara
The last couple of weeks have been interesting for stock market investors both locally and internationally.
United States markets were, however, the most exciting after individual investors took the bull by the horns and made life uncomfortable for Hedge Funds.
I am sure many of us heard about the GameStop frenzy. In brief GameStop is a brick-and-mortar video game retailer that has been losing money. Many Hedge Fund managers did not give it a chance in terms of stock market performance. They projected that its share price would fall and took short positions against it — otherwise known as shorting the stock. Unfortunately, or is it fortunately, individual investors got aware of these short positions and decided to pump GameStop’s share price making it difficult for Hedge Funds to buy back what they had borrowed and sold at lower share prices.
At its peak, GameStop’s share price went up by as much as 1 234 percent from US$35 on January 15 to US$467 on January 28. It’s now trading at US$90.
As the share price soared, an army of retail investors made big money trading in shares of GameStop, if online boasting is to be believed.
The phenomenal GameStop share price gain is all fun and games until it’s game over. As of yesterday, GameStop was trading at US$90, a significant drop from the recent peak.
There is no doubt that an army of retail investors is now smarting in losses after buying at the peak of the whole frenzy. Just like any stock market bubble, investors who get in and out at the right moment make a lot of money, while those who get in too late or stay too long suffer large losses.
The man who started it all, Keith Gill, had reportedly lost more than US$13 million in value as of Wednesday. Although he still had a profit of US$7,6 million as of Wednesday, those gains are only on paper and could turn into a no gain or even losses if he does not dispose of his shares.
While this is all fascinating, and likely to result in important lessons for both hedge funds and retail investors, one take away for me is that individual investors found their voice and challenged the status quo.
The ripples of the GameStop rebellion struck at the core of some hedge funds. Melvin Capital was one hedge fund that suffered extreme losses stemming from a short bet on GameStop, with the fund losing 53 percent in the month of January. From now on, big Wall Street traders will think twice before speculating in ways where they unseemly make huge profits at the expense of the little guy.
And the little guys in Zimbabwe
Interestingly, the little guys in Zimbabwe (read individual investors) have taken to stock market trading in a very big way and the big guys are watching and appreciating.
“We have noticed that 20 percent of the number of trades (not value) on ZSE are now coming from retail clients through ZSE Direct. Thank you for trusting us. We know we need to do more and thank you for your continued feedback. Tatenda!Siyabonga!,” ZSE chief executive Justin Bgoni tweeted on January 26.
The Zimbabwe Stock Exchange is keeping eyes on the ball and was quick to warn traders on its trading platform, ZSEdirect, that they should not allow their trading accounts to be funded by third parties. It’s good to nip such things in the bud and protect the market from money laundering, fraud, and tax evasion among other vices.
Worry for minority shareholders
There is, however, concern for minority shareholders who seem to be under siege from major shareholders of late.
A case in point is the delisting of Dawn Properties and Seed Co Zimbabwe. Minority shareholders are now being forced to accept offers obviously made and priced at prices determined by major shareholders.
If they don’t accept the offers, majority shareholders or the company now has the right to take them to court. The Companies and Other Business Entities Act (Chapter 24:31) allows major shareholders to resort to the courts if minority shareholders are not budging on the offer.
It will be interesting to know why minority shareholders would want to hold on to shares of a delisting company.
Once delisted, any remaining shareholders will not be able to trade their shares freely in the absence of a public market platform and an easily determinable reference price.
Unless of course, it turns out like the Powerspeed one which started paying a share price that was 671 percent above the delisting price.
Like any market, no matter the circumstances, stock markets will always have winners and losers.
