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29 May 2024 16:44
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  •   Home > News > International

    Meme stocks are rising again after Roaring Kitty re-emerges on social media

    GameStop and AMC Entertainment are again capturing retail investors' attention, reminiscent of the meme stock frenzy that gripped Wall Street three years ago. Here's why.


    GameStop and AMC Entertainment have again captured retail investor's attention, causing a resurgence of the "meme stock frenzy" that gripped Wall Street three years ago. 

    It follows cryptic social media posts from the leading figure in that movement, "Roaring Kitty".

    So what is happening?

    Here is what you need to know about the recent surge in meme stocks.

    What is a meme stock?

    Meme stocks refer to certain company shares that have been boosted by retail investors using trading platforms and social media investment advice.

    It burst into the open during 2021 when the COVID-19 lockdowns boosted savings, policy stimulus put cash into people's pockets and extremely low interest rates pushed investors to the stock market.

    A proliferation of zero-fee trading apps also encouraged anyone with a smartphone to dabble in stocks.

    Perhaps the most famous meme stock is GameStop.

    In 2021 a group of amateur investors, who organised themselves on the social media site Reddit, sent the stock for game store GameStop soaring. 

    Who is Roaring Kitty?

    Office worker Keith Gill shot to global notoriety when his "Roaring Kitty" YouTube persona stoked a trading frenzy with bullish bets that propelled shares of GameStop to eye-popping gains and saddled hedge funds that had bet against the stock with billions of dollars in losses.

    At one point, shares of GameStop surged 1,600 per cent. 

    The furious rally in GameStop and other meme stocks burned through hedge funds, rocked Wall Street and drew scrutiny from state and federal regulators. 

    Gill, other traders and financial executives were grilled before US Congress. 

    He denied in his testimony that he used social media to profit by promoting GameStop to unwitting investors. 

    Following the Congress hearing, Gill shut down his accounts and faded into obscurity. 

    His story was portrayed in the 2023 film Dumb Money. 

    So what is happening?

    GameStop has soared suddenly and sharply.

    It jumped 60.1 per cent on Tuesday after surging 74 per cent the day before.

    Other meme stocks from the pandemic era are moving just as radically. AMC Entertainment, the movie theatre operator, leapt 32 per cent on Tuesday.

    GameStop's share price was swinging so sharply after the opening bell on Monday that trading in the stock was halted nine times in just over an hour.

    On Tuesday, the movements for AMC Entertainment were even wilder, and its trading was halted 18 times by early afternoon.

    A burst of momentum brought on by buyers triggered it. 

    Conventional wisdom says a stock should eventually settle at a price that reflects how much cash the company is generating, where interest rates are heading and other factors.

    But in the short term, what sets a stock's price is how much investors are willing to pay for it.

    And, for the moment at least, people are willing to pay much higher prices for shares of GameStop.

    Is Roaring Kitty responsible?

    He could be.

    Roaring Kitty shared a series of cryptic posts on X on Sunday, following a three-year hiatus. 

    They include a sketch of a man leaning forward on a chair, a popular meme among gamers that indicates things are getting serious. 

    Many users on social media took it as a signal and forums were soon buzzing with people saying they were buying GameStop.

    That quickly gave way to screenshots that people said showed how much profit they were making by trading GameStop.

    How big a deal is this?

    It's big, but not as major as what was seen in 2021.

    On Monday, investors pumped a net $US15.8 million ($23.8 million) into GameStop, along with $US37.5 million ($56.5 million) into AMC, according to data from Vanda Research.

    That compares with $US87.5 million ($132 million) and $US170 million ($256 million), respectively, in 2021.

    "Do we think more retail traders can jump in on the trend in the coming days? Yes," said Marco Lachini, senior vice-president at Vanda Research.

    "Do we think this is a repeat of 2021? No, and the chances we reach that stage are low."

    Big hedge funds and other professional investing firms are better equipped to handle the situation this time around, he says, and they could be riding the wave higher with small-time investors before trying to exit the trades before them, which could leave those smaller-pocketed investors holding the risk.

    What are the risks of joining in?

    The momentum of a phenomenon such as this can shift just as suddenly the other way. 

    In 2021, it took only four weeks for GameStop's stock to go from less than $US5 to more than $US120. 

    But it has yet to touch that again. 

    Even after a large jump in the last week, the shares can still be bought for less than $US50. 

    ABC/Wires


    ABC




    © 2024 ABC Australian Broadcasting Corporation. All rights reserved

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