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07 June 2021

‘Meme-Stock’ Mania Hits US Markets Again

At index level, US equities were once again subdued last week. The S&P 500 index fell just 0.64% by Friday morning, while the Nasdaq fell by 1.38%. Nevertheless, a select few stocks seemingly hooked both the headlines and social media, sparking investor revolt against the hedge fund powerhouses once again.

Earlier in the year, so-called ‘Meme-Stock’ mania swept equity markets and saw investors from the online chat forum Reddit take an interest in multiple underperforming companies with the aim of boosting their share prices and squeeze out hedge funds who held large short positions against the stocks. In the period since then, the most inevitable path ensued with valuations in companies such as GameStop and AMC Entertainment normalising. Several hedge funds therefore ramped up their short positions on these companies, with hope that the retail investors on the other side of the trade would blink first. Yet, quite the opposite occurred, AMC entertainment was up nearly 140% by Friday morning, leaving hedge funds with roughly US$2.75bn in unrealised losses. Whether this was another co-ordinated short squeeze, or it simply occurred because AMC offered free popcorn to investors, remains unclear. What is clearer is that current market conditions have shone the spotlight on a new cohort of small investors who have harnessed great influence in their numbers.

AMC was the most actively traded stock on US exchanges last Wednesday, with retail traders now making up a significant 80% portion of their shareholder base. AMC also reported that more than 3.2 million new individual investors owned stakes in the company by March. Although, AMC is having to tread carefully, especially with the offer of free popcorn the company believes “that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” the firm said in its filing. With great retail investors comes great responsibility. “Under the circumstances, we caution you against investing in our Class A common stock unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” the company added.

AMC is up 512% this quarter and an unbelievable 2,850% this year. Other companies that soared for the second time in six months included the likes of BlackBerry, Bed Bath & Beyond, and GameStop.

On this side of the pond, figures from the Bank of England (BoE) highlighted that foreign investors purchased a record-breaking number of UK Government bonds over the last year. Roughly £11.3bn was bought in gilts in April alone, taking the total for the rolling 12-month period to £89.8bn. Despite this being the highest ever, the proportion of UK Government debt owned by foreign investors has actually fallen since the start of the Coronavirus pandemic due to the unprecedented scale of Government borrowing. Analysts stated the last-minute Brexit deal in December diminished many concerns that the pound would head lower, releasing pent-up demand for UK assets such as gilts.

Private Equity firms have also been swooping in on UK equities with the aim of spending record built-up cash piles on the UK’s vast range of undervalued companies. In the past month alone, there have been at least nine proposed private equity takeovers of UK-listed companies and many of the offers are now in the process of seeking shareholder approval. Some of the more eye-catching deals in the pipeline include the £2.8bn acquisition of UDG Healthcare (UDG) by Clayton, Dubilier & Rice, a £2bn takeover bid for infrastructure investor John Laing (JLG) by US private equity giant KKR, and buyout group Carlyle is also looking to acquire inhaler developer Vectura (VEC) at a valuation of £958m. The UK’s leading 100 stock index, as measured by CBOE, rose around 0.62% last week.

Meanwhile, Yorkshire-based Asda was crowned the Free From supermarket Retailer of the Year award last week, beating competitors Aldi, Tesco, Morrisons and Lidl to the prestigious accolade. The award comes after Asda invested £6.1m into pricing so that Free From products are more accessible and affordable for customers. In addition, a packaging redesign helped to remove 16.27 tonnes of plastic from packaging on the supermarket’s shelves. Overall, Asda won 36 awards at the Free From Awards, including two gold, fourteen silver and twenty bronze as well as the top accolade of the night, Free From Retailer of the Year.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
‘Meme-Stock’ Mania Hits US Markets Again
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