How is Social Media Fuelling Stock Market Volatility That Has Led to Chinese Censorship

Social media-led market volatility has resulted in China banning the term “stock media” on its online platforms.

According to a report by Bloomberg, on Weibo, the Twitter-like platform with about half a billion active users, a search for Chinese equivalent of “stock market” generated no posts on its web version on Wednesday, suggesting the phrase had been censored.

The Chinese government’s limits on search results came during the annual session of the National People’s Congress, the biggest political event of the year.

The move is a clear indication of the level of impact social media is starting to have on the movement of price points in the markets.

With the number of investors rising significantly after the global lockdown, social media platforms have become virtual trading clubs for garnering trade ideas, swapping tips and hyping stocks.

For example, earlier this year, a struggling video gaming company based in Texas, GameStop, set off the fireworks, leaving mighty Wall Street hedge funds counting their losses.

The Reddit-fuelled trading frenzy in GameStop saw its shares surge from USD 20 to USD 483 in about two weeks in January, the Wall Street Journal said, squeezing hedge funds that had bet against the video-game retailer and other companies that were out of favour on Wall Street.

Not just GameStop, some other companies, too, were caught in the surge.

Ever since, GamesStop has fallen to around USD 50 even as the frenzy created wealth for some and destroyed for many.

The WSJ last month reported, U.S. regulators are investigating whether there was any market manipulation or other types of criminal misconduct that fueled the rapid rise in GameStop’s and other stocks.

What are the fears arising out of this?

– The price volatility arising due to’ meme stocks’ has brought in higher risks in the market. Brokers and clearinghouses face unprecedented trading volume spikes

– These frantic fluctuations have reportedly made novice traders feel confused and left out. Lack of training but urge to make quick bucks is forcing these traders to take help from social media stock forum postings.

– In trading, it can also cause massive gyrations as it can shape opinions and narratives, laeading to a retail bubble that can potentially cause huge losses.

– Available for free and to everyone, social media platforms are dominated by amateurs and could also fuel herd mentality.

What lies ahead?

Dan Kim, Georgetown University, accounting and computer science, wrote for the WSJ that the antidote, however, is the educated individual, not the hammer of the state.

The way there are influencers for food, fashion, beauty, parenting etc on social media now there are finance and stock market experts on Instagram and Youtube who are spreading financial literacy to people eager to earn a quick buck at the markets. Locked away behind screens, with more time and, sometimes, tight money, investor interest has led to a two-times growth in traffic for these channels and pages over the past 10 months.

Also, with sizeable increase in the number of retail investors, it is only fair to assume that social media-led purchasing and newer meme stocks coming up is what lies ahead.

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