Today's business and finance round up 4th June 2021
Today's issue 📈 Brits pile in on meme stock mania
4th June 2021
Good morning Three recommendations for the weekend:
- Brits pile in on meme stock mania
- Summer travel plan headache continues
Yesterday's market moves
FTSE 100 -0.6% 7,064
FTSE 250 -0.6% 22,802
Markets snapped their winning streak yesterday with both the FTSE 100 and 250 finishing in the red. Investors weighed the latest economic data for signs that crisis-era stimulus measures could be reduced.
Markets are also keen to see the US employment figures due later today which will give an indication of how well recovery is going in the world’s largest economy.
Brits pile in on meme stock mania
What’s going on
British amateur aka retail investors are getting involved with the latest frenzied trading in so called meme stocks like AMC and GameStop.
British trading app Freetrade reported that buy orders for AMC are up almost 300% on the week, and it is the most traded stock on the platform with GameStop second.
AMC was also the most purchased share on Hargreaves Lansdown, the largest retail investment platform in the UK, over the past week with GameStop following closely behind.
Why is this important
Meme stocks took the investing world by storm at the start of 2021 when retail investors took on Wall Street investment firms who were heavily shorting stocks in consumer businesses like AMC and GameStop.
Refresher – what is shorting a stock?
Short selling is when an investor—usually an institutional investor like a hedge fund—borrows a stock and sells the shares with the aim of buying it back later to profit the difference.
When someone shorts a stock, they’re betting the stock price will go down between the time they sell and buy back the stock.
If the stock price goes up, the short sellers must still return the shares. This means buying them back for more than they sold them for, and therefore losing money.
Retail investors used social media platforms like Reddit to encourage people to buy shares in heavily shorted stocks creating a “short squeeze” – this is when those who bet against the stock are forced to buy it in order to prevent bigger losses.
This led to some big name Wall Street investors making huge losses and some even went out of business.
AMC is the world’s biggest cinema chain and owns Odeon in the UK. It’s been one of the highest profile meme stocks and now 80% of shares are owned by 3.2 million individual investors. This year, the stock is up over 3,000% and has used this attention to raise cash by issuing more shares ($230 million in the past week).
Yesterday it announced that it’s launching a new platform that will give retail investors perks like free popcorn and access to exclusive screenings. This led the shares to double in a wild trading session that saw the shares suspended. The company then issued a warning to retail investors not to buy their stock.
It’s clear that meme stock mania is not going anywhere soon.
But retail investors should proceed with caution. Following the herd into hot stocks which are the subject of frenzied speculation is an incredibly risky strategy.
The golden rule when it comes to investing – only invest what you can afford to lose.
Summer travel plan headache continues
Looks like passports are going to stay in the drawer for a while longer…
Yesterday the government announced an updated list of countries where you do not have to quarantine on your return – oddly enough that list has shrunk, with Portugal set to become ‘amber’ from next week and no other countries are being added to the green list.
The decision to change Portugal’s status will come as a bitter blow to many as it was the only viable major tourist destination on the list.
Unless you are willing to travel to one of the select few countries on the green list or happy to quarantine, the British summer may have to suffice this year it seems. Of course, if you do take the option to travel abroad, do not forget to factor in PCR tests and consider Covid rules in the country you are planning to go to!
News of the travel watch list filtered through into markets as investors took their frustration out on travel and leisure stocks – airlines are a case in point with the likes of British Airways owner IAG (-5.4%) and easyJet (-5.1%) coming under selling pressure.
Understandably the international travel and tourism sector is disgruntled about the government’s decision with concerns that significant job losses could be on the way if the situation remains unchanged.
Stat of the day
More than half of UK adults have had a second jab and are fully vaccinated
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