Indosuez Wealth Management shrugged off worries about market impact from the now infamous «Reddit rally» but cautioned against regulatory moves to ban short selling as a response.
«Twitter is not new. Reddit is not new,» said Indosuez Wealth Management equity advisor Ryan Landolt in a virtual roundtable yesterday, adding that he was surprised that regulators are only now turning their attention to the impact of social media on markets.
Nonetheless, Landolt believes that the effects of the recent short squeeze against hedge funds, believed to be driven first by U.S. netizens, will die down over time.
«In a few years, we’ll probably be watching movies like the 'Big Short Squeeze’.»
Silver: No Chance
Meanwhile, Reddit rally participants have reportedly shifted their focus from shorted stocks to silver. While Indosuez Asia head of capital markets Davis Hall likened the retail investor movement to the «David and Goliath» story, he expected much less success for underdogs this time around.
«Everyone loves a good myth. 'David and Goliath', I think, is always a good story,» Hall said. «[But] trying to corner the silver market is a lot more difficult.»
The size of the market aside, Hall noted other challenges for investors attempting to move silver prices include its limited supply, significant long positions from hedge funds and strong industrial usage for the precious metal.
Short Selling Ban: Unlikely
Despite diminishing impact from the Reddit rally, regulators worldwide are actively reviewing the situation and Indosuez believes that there is a possibility for a change in rules though it does not foresee or support an outright ban on short selling.
«Banning short selling would be a bad idea because when you do have a healthy, functioning market and you do have certain stocks that are sold short, people buying back to take their profit can put a cushion under a complete collapse,» Landolt explained. «If you ban the practice outright, you could get a situation where there’s nobody buying back the shorts so you could get an even more serious collapse.»
The bank believes that some possible regulatory tweaks could include a cap on the portion of a firm’s total float that can be short sold or higher margin requirements.
