Global bets worth billions of dollars could be at risk as amateur share traders challenge the bearish positions of influential funds, inflating stock valuations and leaving the professionals looking at potentially hefty losses.
Gone are the days when bruised retail investors fled after prominent hedge funds bet against a stock — the GameStop effect is rippling across U.S. markets and spreading to Europe.
Shares of the 20 small-cap Russell 2000 index companies with the biggest bearish bets against them have risen 60% on average so far this year, easily outperforming the rest of the market, a Reuters analysis of Refinitiv data shows.
Similarly, the best performers in Britain this week have been companies such as Pearson and Cineworld, in which investors also have sizeable short positions.
But share price surges such as the 700% year-to-date jump in U.S. video game retailer GameStop could potentially wipe out billions of dollars of those short bets.
Bets against GameStop alone amounted to more than $2.2 billion as of Monday, FIS’ Analytics data showed, equivalent to more than a fifth of the company’s market value.
However, the company’s share price has quadrupled since the end of last week, reaching as much as $340 in U.S. pre-market trading on Wednesday.
“Most of the short positions are funded on margins. And so when markets run against you, you are stopped out if you are a short seller,” said Kaspar Hense, a fund manager at BlueBay Asset Management, which runs $60 billion in assets.
