Much has been written about the GME “short squeeze” and the ensuing chaos that has gripped sections of the U.S. financial markets. But one factor that has gone almost entirely ignored is how this incident demonstrates a big difference between American and Chinese retail investors.
But first, a quick summary of what has happened in the U.S.: bearish institutional investors very publicly shorted GameStop (GME) stock. Internet commenters, many of them Americans who frequent the WallStreetBets subreddit, got annoyed and launched a “short squeeze,” banding together to buy the stock and drive its price up.
At its peak, GameStop’s stock was 19x higher than it had been at the beginning of January. It has since fallen (although it’s still well above its price before the rally started), but the dramatic price spike and the appealing David-and-Goliath narrative of retail investors taking on Wall Street has inspired some to attempt a similar push on other assets.
For example, a Twitter influencer @WSBChairman posted “Has Doge ever been to one dollar?”, trying to replicate the epic GME rally. The cryptocurrency’s price surged more than 10x within the next 48 hours. Elon Musk, the founder of Tesla, posted a picture with the caption of Dogecoin, and even Snoop Dogg has gotten in on the hype.
One reason behind the WallStreetBets-led GME rally is the dissatisfaction caused by inequality and economic recession. A high unemployment rate during the financial crisis led to the Occupy Wall Street movement, and there seem to be strong echoes of that anti-Wall-Street sentiment in the online investment movement happening now. High-profile Wall Street figures like Steve Cohen, whose hedge fund bankrolled one of the firms initially involved in shorting GameStop, have been forced off of social media by angry commenters.
China’s Younger Generation Seem to Like Institutions
The GME drama of course does not represent oveall US investor sentiment. But still, in contrast to U.S. retail traders, China's investors appear to be actively embracing institutionalization. Younger investors are more likely to trust institutions and famous fund managers. According to DataYes, the number of public funds in China is 7,913 as of December 2020 — an increase of 766% since 2011. And one investment platform, Lu Fund, saus that 62% of investments made by users born after 1995 are into public funds.
In the past year, China's Shanghai Stock Exchange Index has achieved a 22.7% annual growth. With China’s capital market maturing, individual investors have become more and more interested. According to The Economic Observer, half of the new individual fund investors in China were born in the 1990s.
For this generation, investment is not only a financial activity. It is also a very social one. Public fund managers with outstanding performance usually have a significant number of followers on Weibo. For example, on January 25, the E Fund Blue Chip Selected Mixed Fund managed by Kun Zhang made headlines in major media after realizing a daily increase of 5.05% in net value due to its heavy exposure to Kweichow Moutai. Many amateur investors have spontaneously organized fan groups supporting these fund managers on social media.
This “fandomization” of hedge fund investors, as it has been jokingly called by Chinese internet commenters, is a far cry from the anti-Wall Street sentiment bubbling in the United States.
With the acceleration of digitalization, whether it is traditional capital markets or emerging investment fields (such as blockchain, financial technology), China and the United States may take very different paths because of the very different sentiment among younger retail investors in the two countries. As the global markets adjust to new technologies and the growing importance of blockchain-based markets and assets, they will also have to contend with the differing ideological directions of these two groups of investors.
Capital markets in the U.S. and China are going through two completely different stages. But in both, younger generations are becoming the backbone of the market, and will have an important impact on future asset prices and market development.