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ASX bleeds $41bn in worst session since September

Anastasia Santoreneos
·3-min read
$38 billion wiped from ASX amid GameStop frenzy. Source: Getty
$38 billion wiped from ASX amid GameStop frenzy. Source: Getty

The Australian share market has experienced its worst session since September, losing around $41 billion, after shedding more than $50 billion at session lows.

The benchmark S&P/ASX 200 (^AXJO) finished 1.93 per cent lower to 6,649.70 points, while the broader All Ordinaries (^AORD) closed down just over 2 per cent to 6,917.60 points.

Major losses were seen in IOOF Holdings, which fell more than 10 per cent, and ALS Limited, which fell more than 7 per cent.

Treasury Wines rose 6 per cent while Invocare, Inghams and Tassal Group also posted solid gains.

What happened this afternoon?

The benchmark S&P/ASX 200 (^AXJO) was 2.31 per cent lower at 12:34pm AEDT on Thursday as it struggled to recover from a bumpy night for international markets.

The broader All Ordinaries (^AORD) was also down 2.43 per cent to 6,888.40 points.

That equates to around $51 billion wiped off the share market, with the sell-off led by financials and mining stocks.

What happened this morning?

The Australian share market felt the repercussions of a calculated short squeeze on GameStop stocks in the US, bleeding nearly $40 billion at the opening of trade.

The ASX200 opened around 1.79 per cent lower to 6,661.80 points at 10.26am AEDT.

The All Ordinaries followed the same trajectory, falling 1.82 per cent at the open of trade to 6,932 points at 10.26 AEDT

The Aussie share market closed 0.65 per cent lower on Wednesday, marking the biggest loss on the ASX in more than a week, led by mining stocks.

In the US

US stocks suffered their biggest one-day percentage drop in three months on Wednesday, after hedge funds began selling their long positions.

And it’s all because of retail traders grouping together on Reddit to stop hedge funds making money on one stock: GameStop.

GameStop has seen a 642 per cent surge since 12 January, with a tweet from Elon Musk triggering a further US$4 billion influx to the company’s market cap overnight on Tuesday.

But experts say the surge in stock price is an elaborate ploy by retail traders on a Reddit thread called WallStreetBets, who are pumping the stock with money in order to rort hedge funds that short stocks.

Hedge funds who short the stock, that is, borrow stocks to sell them at a higher price and buy them back when the stock is lower, have been forced to sell off their “long” positions as Reddit users continue to inflate the stock.

That’s called a short squeeze.

But ‘Big Short’ investor Michael Burry, who made billions by shorting the US housing market in the global financial crisis, has warned the rise in GameStop is “unnatural” and “insane”.

And fund managers have said it’s a “dangerous” game to play on both sides of the spectrum.

"You get close enough to the fire you're going to get burned,” Matthew Keator, managing partner in the Keator Group told AAP.

The Dow Jones Industrial Average fell 2.05 per cent, to 30,303.17 points, the S&P 500 lost 2.57 per cent, to 3,750.77 and the Nasdaq Composite dropped 2.61 per cent to 13,270.60.

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