Hedge funds tremble: Troubled times are ahead of the stock markets

Hedge funds tremble
Troubled times are ahead of the stock exchanges

The gamble with Gamestop shares is throwing up the stock exchanges. The struggle between hedge funds and private speculators should also cause wild price jumps in the next week.

The corona quake has turned into a game stop quake on the stock exchanges. In the past few days, it was not the virus that was the most talked about, but the events surrounding the shares of a video game dealer – with a battle between short speculators and private investors who have mobilized in an Internet forum. With concerted purchases, they forced hedge funds to cancel their bets on the fall in the price of certain securities and in some cases drove them to the brink of ruin. Late in January, the turbulence hit what was already a well-believed start to the year – and according to experts, it may not be over yet.

The Dax went 1.7 percent lower on Friday at 13,432 points from trading. On a weekly basis, it has lost 3.2 percent in value. In the second German series of exchanges, the MDax fell 1.1 percent on Friday to 31,086 points. The small value index SDax, on the other hand, did a little better, it only crossed the finish line slightly at 0.2 percent in the red.

According to Jochen Stanzl from the trading house CMC Markets, "the topic could ultimately become a serious threat to the entire financial system" because a bias in hedge funds could lead to drastic upheavals. "Since everything is closely intertwined in the modern financial markets, too many cogs jumping out can lead to the overall system no longer working properly," Stanzl fears.

Investment strategist Chris-Oliver Schickentanz from Commerzbank sees the fight between private speculators and professionals as a "social investment decision" and thus a new, difficult to forecast influencing factor on the stock markets. Regulators and politicians could now be asked – according to Schickentanz with the aim of "preventing manipulative market intervention by hedge funds and a herd of small investors alike."

US stimulus package is approaching

One thing is certain: the soaring stock exchanges have ended. Sluggish coronavirus vaccinations, discussions about tightened pandemic restrictions and mixed company balance sheets also contributed to this. "For investors who are used to success and who have only known rising share prices for weeks, it is now getting really uncomfortable for the first time in a long time," says market analyst Milan Cutkovic from brokerage firm Axi.

"So far, we have not seen a general change in mood," emphasizes portfolio manager Thomas Altmann from the investment advisor QC Partners. The current losses are only overdue profit-taking. Between the end of October and the beginning of January, the leading index had gained more than 20 percent and at times rose to a record high of 14,131 points. In the new week, however, a ray of hope can be expected, says Altmann. Those components of the planned Corona stimulus package of the new US President Joe Biden, for which a simple majority of his Democratic Party is sufficient, could be brought through Congress at short notice.

As far as company reports are concerned, the new week in Europe is going to be quite something. Siemens Healthineers reported on Monday, Siemens Energy on Tuesday and, after the US market closed, US giants Amazon and Alphabet. Siemens will follow on Wednesday and Infineon and Deutsche Bank will follow with their reports on Thursday. In many cases, especially with companies in the Siemens environment, key data are already known. Infineon has to measure itself against the strong submissions of some competitors.

Numerous economic data

In terms of the economy, there could be many new impressions in the new week. "Because a series of economic data from Europe will be published, which reflects the stresses on the economy from the second Corona wave," says Deka Bank economist Ulrich Kater. Important data is also expected from the USA, initially on Monday and Wednesday with the ISM purchasing managers' indices and on Friday with the labor market report.

Experts are expecting new jobs to build up again in January, after jobs had surprisingly been cut in the previous month. Since the pandemic restrictions in the USA were tightened, especially from November to December, he does not expect any further wave of layoffs, predicts Commerzbank analyst Christoph Weil. "In most of the other industries, staff were still being added even in December."