GameStop share price could lead to global market crash?

Could this be the beginning of the end? The recent GameStop share price saga has upended the conventional wisdom in stock markets. For centuries, the big boys had always ruled the financial markets. Based on my knowledge, there was no precedent in which retail investors win the big boys. But in the last week of January 2021, the world has witnessed an extra-ordinary event in which the big boys of Wall Street was thrashed by the retail investors.

In late January 2021, there were reports of US hedge funds losing billions in assets after retail traders drove up prices of shares that were being heavily shorted by the big boys. GameStop share price, a loss-making video game retailer in US, had become a key battleground between the retail investors and the hedge funds.

Without taking sides, I am more worried about the implications out of this saga. When the big boys need to cover their short selling losses, they would have to deleverage and sell their liquid assets, namely the blue chips. As Dow Jones is dominated by thirty blue chips, the sell-offs by the big boys had caused the index to plunge 600 points on 30 January 2021. It is unknown when the tug of war between GameStop share price and the hedge funds will cease. But if the vicious cycles continue, the stock market could reach a turning point.

After messing around with the stock market, GameStop investors then shifted their attention to silver as the precious metal prices shot up to an 8-year high on 1 February 2021. In view of the extreme demand for silver bullion, Singapore’s BullionStar introduces a minimum order amount of $499.

GameStop

Will this headwind blow over to SGX? Frankly speaking, I don’t know but I am not taking any chances. To manage this risk, I am taking proactive measures to safeguard my wealth. In this article, I will share my strategies to mitigate the risks resulting from this GameStop whirlwind. Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market.

GameStop share price in revolution of our times

With 5000 stores, GameStop is basically a brick-and-mortar video game retailer. COVID-19 pandemic has led to unprecedented lockdowns in various US cities, thereby affecting GameStop share price. As of 31 October 2020, GameStop raked in losses amounting to US$300 million. Due to this, hedge funds predicted a poor outlook for GameStop share price (and rightly so) and had been shorting this counter since last year.

To be fair to the hedge funds, short selling activities can serve as a balancing act and prevent market exuberance. Sometimes, loss-making businesses may see their shares continuing to rise because retail investors continued to buy their shares even though the business fundamentals had turned soured. By allowing share prices to continue to rise exuberantly, investors are just creating a massive bubble for those who enter in latter stages. The endgame will be even worse for the retail investors.

In my humble opinion, the reason for investors to pile on the GameStop and drive up the GameStop share price is really to [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: February 2, 2021 — 3:25 pm

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