From the GME forced short event, the comparison of Chinese and American retail investment behavior

Comparison of retail investor behavior in China and the United States from the GME Short-selling Event

Originally written by Joe Wang

Original source: Longhash

In the last trading week of January 2021, Wall Street hedge funds and institutional short sellers took heavy losses in the GameStop stock long and short game, while one of their counterparties was driven by the amateur retail trading community on the Internet.

Melvin Capital, a hedge fund with famous short selling organizations Citron Research (Citron Research) announced on twitter high-profile bearish on the GameStop shares and sold short action, many American netizens grew up in a GameStop store shopping attitude toward Wall Street financial institutions and counterproductive, Reddit (red di network) retail social group BBS Wall Street Bets are on major social media launched a massive short squeeze (short squeeze) movement, Pushed its GME share price from $17 at the beginning of the month to as high as $347, a roughly 19-fold increase.

As of January 31, 2021, Melvin Capital only lost more than 50% of its fund in one month. Citron publicly announced that it would stop its 20-year short stock analysis and focus on providing long trading analysis for retail investors in the future. In retail victory over the short selling mechanism of emotional, social media appear on twitter last Wall Street of Bets a parody account for continuous series "shout" behavior, and an enormous influence such as imitation of Wall Street Bets with 900000 fans of BBS edition advocate web celebrity (@ WSBChairman) in the subsequent tweets said "have you ever seen a dog currency (Dogecoin) more than $1?" highest price rise of 48 hours after more than ten times, Meanwhile, Tesla founder Elon Musk tweeted a picture of the Dogecoin meme, which brought the market's speculative mood to a climax.

The anger of the individual investor alerted the White House, and the US ushered in a trend of "reverse institutionalization"

The main reasons behind the WSB event in early 2021 and the "Occupy Wall Street Movement" in September 2011 are the dissatisfaction over the gap between the rich and the poor and the economic depression. A decade ago it was a wave of job losses in the wake of the financial crisis. This time it is a wave of established bricks-and-mortar closures. According to the Financial Times, retail favorite Internet upstart brokerage Robinhood in the United States has shut down trading of GME, AMC, Nokia and other stocks that received WSB forum praised the "can't play unplug the Internet", netizens called "Delete the Robinhood app" protest movement on Twitter.

As of Jan. 29, 2021, 48 Twitter posts had been retweet more than 50 times. Many traditional financial and digital currency influencers have joined the online campaign, including Chamath Palihapitiya, a venture capitalist at Social Capital and a director of the NBA's Golden State Warriors, who has criticized Robinhood,

He also spoke out on CNBC about hedge funds and Wall Street abusing their power to treat ordinary investors unfairly.

The Wall Street Journal reported Feb. 3 that U.S. Treasury Secretary Janet Yellen has begun convening meetings with top financial regulators to discuss recent market volatility related to GameStop. Steve Cohen, the founder of Star Investment, a hedge fund backed by Melvin Capital, has shut down his social media accounts because of the public outcry and threats. In short, retail traders and Internet users in the United States have become increasingly angry with Wall Street institutions.

On the other hand, these so-called professional hedge funds didn't do well in 2020-2021, with the $101.9 billion Bridgewater fund losing investors $12.1 billion in 2020 as of Jan. 25, according to a ranking by LCH Investments, which not only underperformed the market benchmark but also caused losses. Three Renaissance funds set up by the scientists, which are open to outside investors, lost between 20 and 30 per cent. These professionals with huge capital and resources caused huge losses during the bull market of US stock market, so that the American public's impression of Wall Street continues to deteriorate.

A new generation of retail investors in China has increased trust in financial institutions

China's investment market, in stark contrast to the US retail trader, is embracing institutionalisation. Newly minted "millennial" investors are more trusting of investment institutions and well-known fund managers, with 7,913 public funds raised by December 2020, up 766% from 2011, according to data from Tonglian.

In the past year, the Shanghai Composite Index has grown by 22.7% annually. China's capital market environment has gradually matured, and the enthusiasm of retail investors has also gradually warmed up. According to the Economic Observer, half of China's newly minted retail fund investors are "millennials" born in the 1990s. Interestingly, investment is not only a wealth management product for them, but also a social tool. On weibo performance excellent public offering fund managers are Internet users, such as, on January 25, e Zhang Kun management of blue-chip selected due to the heavy liquor net single-day rise 5.05% each big media headlines, many netizens spontaneously in the major social media organizations these fund managers fans, dubbed retail fund "rice".

Capital market participants in the two most dynamic economies, the United States and China, are going through completely different stages, and these millennials are becoming the backbone of the market and will have a significant impact on asset prices and market developments in the future.

The US capital market has a long history, and Wall Street institutional investors and regulators have rich experience. However, the GME incident highlights that hedge funds have long enjoyed the bias of the system and the advantage of Wall Street's network information, which is once again questioned by ordinary traders and the public. And this is just the beginning. In the 12 years since the 2008 financial crisis, from the financial crisis to Fed inflation, young Americans have gone from yearning for Wall Street to distaste it. However, China's new investors are in the early stage of "institutionalization" and have more yearning for new investment methods and professional services.

In today's digital acceleration, both traditional and emerging capital market investments (e.g., block chain, finance, science and technology), China and the United States on behalf of the two kinds of completely different style of "millennials" investors and investment will continue to impact on the global market, retail investors with market structure composed of specialized investment institutions will usher in change.

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