A “short-squeeze” that started on Wall Street swept across the Atlantic, triggering another day of frantic moves in company stock prices with big bets placed against them.
Stocks such as German pharmaceutical company Evotec, former Financial Times owner Pearson and Polish game developer CD Projekt rose strongly in intraday trading.
Some of these companies were targets of Melvin Capital, a hedge fund that has been recognized by day traders. The shares included Evotec, which climbed to 30 percent before falling back to trade up 5.5 percent; CD Projekt, which rose 15 percent and recently traded up 6.4 percent; and German battery maker Varta, which jumped 12% before slashing earnings to rise 4.6%.
The short-term squeeze in the United States also continued on Wednesday, with shares of AMC, the movie company, surging more than 200% in volatile stock. GameStop, which has been at the center of the retail boom, has soared 100%.
The dramatic movements highlight the growing influence retail traders, which have organized themselves on the Reddit message board site. The group focused on the rise in values which are the subject of significant “short bets” from hedge funds. Melvin, who has been at the center of the storm, revealed on Wednesday that he had closed its GameStop position, with betting contributing to a multibillion-dollar loss early this year.
Retail investors use “a proven hedge fund strategy of scolding crowded deals held by weak investors,” said Andrew Beer, managing member of fund firm Dynamic Beta Investments.
Unlike the United States, which has limited disclosure on short bets, hedge funds and other investors must disclose when they have sold more than 0.5% of a company’s shares in the EU and the UK. United, which facilitates positions.
Melvin’s latest disclosure shows he has bet against more than 6% of Evotec stock, making him the biggest bet against a European company by percentage of shorted stocks, according to data provider Breakout Point. The US hedge fund’s bet against Varta is the fifth.
“The phenomenon of rapid squeeze fueled by retail investor talk is spreading across Europe,” said Ivan Cosovic, founder of Breakout Point. “We recently spotted some European stocks touted as ‘the next GameStop’ among retail investors.”
The targeting of hedge funds will be viewed with irony by many financial market insiders, as these funds are often the protagonists of short-selling “attacks” on troubled companies.
Heavily sold stocks unrelated to Melvin Capital also rose on Wednesday. According to IHS Markit, shares of Pearson, the UK education publishing company which is the third best-selling stock in Europe, rose 12% by mid-afternoon in London. New York-based hedge fund D1 Capital Partners of Daniel Sundheim, which also sold Varta, has the biggest bet against Pearson, at 3.8% of its share capital.
Real estate firm Wereldhave, in which Woodson Capital revealed a short position of 4.2% and London-based Adelphi, bet 3.6%, rose around 5%.
Hedge funds in Europe are now fervently scouring top-selling stock listings and message boards such as Reddit for any signs their short bets may be in trouble.
“Any good hedge fund group will look at this,” said the head of a multi-billion dollar European hedge fund company.
A European short-selling hedge fund manager described recent stock market rebounds as ‘insane’ but said high stock prices of distressed companies ‘would be a great opportunity’ for surviving short sellers to the chaos of the week.