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Did FT Alphaville unwittingly fuel the GameStop madness?

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Well, did we? Or more specifically, did an old post from Jamie Powell help bring about the deathly squeeze on Melvin Capital et al?

Consider this nugget from Sheelah Kolhatkar’s fabulous tick-tock on the GameStop phenomenon in The New Yorker last month . . . 

In the next few days, Herdman monitored the online chatter about GameStop. He was convinced that the price would continue to climb. He’d read about previous instances when large numbers of small investors had organized online and caused a stock to rise, such as in 2008 with Volkswagen, which had quadrupled in price in two days.

Now consider this chart:

That’s Gamestop share price action since December, overlaying FT Alphaville’s readership metrics over the same period for one particular post. This post.

And, you guessed it, 81 per cent of the traffic came from Reddit, with the balance from Twitter and Facebook.

Reckless Redditors appear to have come to FT Alphaville for both help with their history homework, and as a blueprint for their market shenanigans.

Our more mature readers will remember the wonderful VW Fruit Machine (and the comical inability of the German regulator to deal with the issue at the time).

On that occasion, 13 years ago, canny retail punters were able to rush in behind Porsche’s outrageous option-led cornering of the market in Volkswagen stock, squeezing out the short sellers who were betting the discount between VW’s preference and ordinary shares would snap close.

More vintage material on the matter here and here (and in the links below).

Spoiler alert: back in 2008 VW’s stock price fell back to earth rapidly. The same cannot be said for GameStop, AMC and the other stonks. Not yet anyway.

Related Links:
The day Volkswagen briefly conquered the world — FT Alphaville
Melvin Capital, GameStop and the road to disaster — FT
Porsche LLC? — the VW fruit machine explained — FT Alphaville
Car crash in Germany — FT Alphaville
The disreputable market in Volkswagen — FT Alphaville
Baaaaaaafin: No surprises here — FT Alphaville
Baaaaaaafin: Porsche, nochmal — FT Alphaville
Porsche ‘Great Squeeze’ action doubles in size — FT Alphaville



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US regulators launch crackdown on Chinese listings

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US financial regulation updates

China-based companies will have to disclose more about their structure and contacts with the Chinese government before listing in the US, the Securities and Exchange Commission said on Friday.

Gary Gensler, the chair of the US corporate and markets regulator, has asked staff to ensure greater transparency from Chinese companies following the controversy surrounding the public offering by the Chinese ride-hailing group Didi Chuxing.

“I have asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective,” Gensler said in a statement.

He added: “I believe these changes will enhance the overall quality of disclosure in registration statements of offshore issuers that have affiliations with China-based operating companies.”

The SEC’s new rules were triggered by Beijing’s announcement earlier this month that it would tighten restrictions on overseas listings, including stricter rules on what happens to the data held by those companies.

The Chinese internet regulator specifically accused Didi, which had raised $4bn with a New York flotation just days earlier, of violating personal data laws, and ordered for its app to be removed from the Chinese app store.

Beijing’s crackdown spooked US investors, sending the company’s shares tumbling almost 50 per cent in recent weeks. They have rallied slightly in the past week, however, jumping 15 per cent in the past two days based on reports that the company is considering going private again just weeks after listing.

The controversy has prompted questions over whether Didi had told investors enough either about the regulatory risks it faced in China, and specifically about its frequent contacts with Chinese regulators in the run-up to the New York offering.

Several US law firms have now filed class action lawsuits against the company on behalf of shareholders, while two members of the Senate banking committee have called for the SEC to investigate the company.

The SEC has not said whether it is undertaking an investigation or intends to do so. However, its new rules unveiled on Friday would require companies to be clearer about the way in which their offerings are structured. Many China-based companies, including Didi, avoid Chinese restrictions on foreign listings by selling their shares via an offshore shell company.

Gensler said on Friday such companies should clearly distinguish what the shell company does from what the China-based operating company does, as well as the exact financial relationship between the two.

“I worry that average investors may not realise that they hold stock in a shell company rather than a China-based operating company,” he said.

He added that companies should say whether they had received or were denied permission from Chinese authorities to list in the US, including whether any initial approval had then be rescinded.

And they will also have to spell out that they could be delisted if they do not allow the US Public Companies Accounting Oversight Board to inspect their accountants three years after listing.



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Wall Street stocks climb as traders look past weak growth data

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Equities updates

Stocks on Wall Street rose on Thursday despite weaker than expected US growth data that cemented expectations that the Federal Reserve would maintain its pandemic-era stimulus that has supported financial markets for a year and a half.

The moves followed data showing US gross domestic product grew at an annualised rate of 6.5 per cent in the second quarter, missing the 8.5 per cent rise expected by economists polled by Reuters.

The S&P 500, the blue-chip US share index, closed 0.4 per cent higher after hitting a high on Monday. The tech-heavy Nasdaq Composite index climbed 0.1 per cent, rebounding slightly after notching its worst day in two and a half months earlier in the week.

The dollar index, which measures the US currency against those of peers, fell 0.4 per cent to its weakest level since late June after the GDP numbers.

“Sentiment about the economy has become less optimistic, but that is good for equities, strangely enough,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam. “It makes central banks less likely to withdraw support.”

Jay Powell, the Fed chair, said on Wednesday that despite “progress” towards the bank’s goals of full employment and 2 per cent average inflation, there was more “ground to cover” ahead of any tapering of its vast bond-buying programme.

“Last night’s [announcement] was pretty unambiguously hawkish,” said Blake Gwinn, rates strategist at RBC, adding that Powell’s upbeat tone on labour market figures signalled that the Fed could begin tapering its $120bn a month of debt purchases as early as the end of this year.

The yield on the 10-year US Treasury bond, which moves inversely to its price, traded flat at 1.26 per cent.

Line chart of Stoxx Europe 600 index showing European stocks close at another record high

Looking beyond the headline GDP number, some analysts said the health of the US economy was stronger than it first appeared.

Growth numbers below the surface showed that consumer spending had surged, “while the negatives in the report were from inventory drawdown, presumably from supply shortages”, said Matt Peron, director of research and portfolio manager at Janus Henderson Investors.

“This implies that the economy, and hence earnings which have also been very strong so far for Q2, will continue for some time,” he added. “The economy is back above pre-pandemic levels, and earnings are sure to follow, which should continue to support equity prices.”

Those upbeat earnings helped propel European stocks to another high on Thursday, with results from Switzerland-based chipmaker STMicroelectronics and the French manufacturer Société Bic helping lift bourses.

The region-wide Stoxx Europe 600 benchmark closed up 0.5 per cent to a new record, while London’s FTSE 100 gained 0.9 per cent and Frankfurt’s Xetra Dax ended the session 0.5 per cent higher.

In Asia, market sentiment was also boosted by a move from Chinese officials to soothe nerves over regulatory clampdowns on the nation’s tech and education sectors.

Beijing officials held a call with global investors, Wall Street banks and Chinese financial groups on Wednesday night in an attempt to calm nerves, as fears spread of a more far-reaching clampdown. Hong Kong’s Hang Seng rose 3.3 per cent on Thursday, although it was still down more than 8 per cent so far this month. The CSI 300 index of mainland Chinese stocks rose 1.9 per cent.

Brent crude, the global oil benchmark, gained 1.4 per cent to $76.09 a barrel.



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Man Group posts tenfold gain in performance fees

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Man Group PLC updates

Man Group, the world’s largest listed hedge fund manager, reported first-half performance fees 10 times higher than a year ago, in the latest sign of the industry’s robust rebound from the coronavirus pandemic.

Strong commodity and equity markets helped take performance fees at the London-based company to $284m in the six months to June, up from $29m a year before when March’s huge market falls hit many fund returns, and the highest level since at least 2015. Performance fee profits were 50 per cent above broker consensus forecasts.

Man also posted $600m of net client inflows in the three months to June, its fourth consecutive quarter of inflows, although the figure was lower than analysts had expected. However, $6bn of investment gains in the second quarter helped lift assets under management to a record high of $135.3bn.

Column chart of Half-yearly performance fees ($) showing Man Group cashes in on market rebound

Man’s results highlight how strongly the $4tn hedge fund industry has bounced back after a turbulent 18 months for markets, including a huge sell-off last spring, as well as sharp market rotations and retail investor-driven rallies in meme stocks that some funds were betting against.

Last year, hedge funds, which have long been criticised for mediocre returns and high fees, made 11.8 per cent on average, according to data group HFR, their best calendar year of gains since 2009 in the wake of the financial crisis.

Investors have taken notice. After three years of net outflows, the industry has posted $18.4bn of inflows in the first half of this year.

Chief financial officer Mark Jones said the hedge fund industry was now benefiting from a tailwind after strong gains last year. “You saw hedge funds deliver exactly what clients wanted,” he told the Financial Times.

“Clients need new sources of return,” he added. They “are trying to reduce their bond exposure, and most have as much equity exposure as they can stomach”.

This year Man has made strong gains at its computer-driven unit Man AHL, named after 1980s founders Mike Adam, David Harding and Martin Lueck, which tracks trends and other patterns in markets.

Its $4.6bn AHL Evolution fund, which bets on trends in close to 800 niche markets, has gained 10.2 per cent so far this year and contributed $129m of the performance fees in the first half. The fund is shut to new money but Jones said that late last year it opened briefly to new investment, raising $1bn in a week.

Man’s first-half profits before tax came in at $323m, well above analysts’ forecasts. The company also said it would buy back a further $100m of shares in addition to the $100m announced last September. Broker Shore Capital said the company had posted “blowout” figures.

Man’s shares rose 2.4 per cent to 196 pence, their highest level in three years.

Last month, Man announced that chief investment officer and industry veteran Sandy Rattray would leave the company. Meanwhile, Jones is set to step down from the board and take on the role of deputy chief executive, overseeing the computer-driven AHL and Numeric units.

laurence.fletcher@ft.com



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