The ASX chief executive has confirmed he would not hesitate to put companies into trading halts if they experienced massive swings in value – like GameStop experienced last month in the US.
“We have also seen ongoing volatility and volume in the equity market due to COVID and, conversely, stability in the interest rate market due to yield curve control. And post the reporting period, we witnessed the ‘short squeeze’ of certain US equities driven by retail day traders, which has prompted significant global debate,” Mr Stevens said.
The CEO said that while he is pleased to see more people showing interest in the market, he noted that if the markets become a game, “that is not a good thing”.
“You don’t want to put your eggs in one basket and invest because a message-board spruiker told you that is what you should invest in,” Mr Stevens told the media.
“We have seen the gamification of trading overseas, and trends can come down here. But if it becomes a game, people are not thinking about fundamental value in the long term, and I think we should be cautious about that.”
The CEO also warned investors looking to short squeeze in Australia, noting that ASX staff monitor social media platforms such as Reddit and HotCopper to protect the market.
Speaking recently to nestegg, RMIT’s senior lecturer of finance, Dr Angel Zhong, explained that several factors have contributed to the rise in younger investors playing the sharemarket like a casino.
“First, due to COVID-19 lockdown, people had to stay at home. They had so much time but nothing else to do. As such, they turned to the sharemarket. Second, due to COVID-19 restrictions, casinos and other gambling avenues are closed. Sharemarkets have become a substitute for investors to gamble in.”
“Third, stimulus payments become another driving force. Our research suggests that around the world, countries that distribute stimulus payments are associated with higher increase in retail trading.
“Fourth factor is related to social media. There are a lot of investment groups on Facebook, investment channels on YouTube and stock discussion trading forum. Fifth, the stock markets around the world experienced a dramatic decline in COVID-19. The low price lured retail investors’ participation,” Dr Zhong said.
She opined that the tendency of younger investors to get carried away and potentially risk massive losses calls for increased financial literacy.
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