The collapse of the Archegos Capital Management LLC fund last month is only the most recent example of how extreme liquidity can make financial markets more volatile and sometimes lead to bizarre outcomes.
Another dramatic instance came in late January, when shares of GameStop Corp skyrocketed following a buying frenzy coordinated by retail investors eager to defend the video game retailer from funds betting against it.
Shares of GameStop have since retreated, but the episode shined an uncomfortable light on online trading platforms and speculative investment funds involved in the financial melee.
Photo: Reuters
In the case of Archegos, leading banks appear poised for hefty losses following billions of dollars in sudden stock liquidations by a fund that had large market exposure backed by very little cash.
Then there has been the wave of special purpose acquisition companies, known as SPACs, which have entered public markets through transactions with fewer rules than traditional stock offerings.
All of these cases show how a flood of liquidity in the wake of accommodative monetary policy is changing Wall Street.
“Stocks have risen extremely quickly from their lows last March, but there is still plenty of liquidity out there,” Meeschaert Financial Services LLC president Gregori Volokhine said.
The US Federal Reserve has been aggressive in pumping funds into the financial system, while US President Joe Biden and his predecessor Donald Trump signed sweeping fiscal packages that primed households and businesses with funds.
“I just don’t know that we’ve seen this much money hit the system this fast between what we’ve seen in stimulus checks and now what we’re going to see with infrastructure,” said TD Ameritrade Holding Corp market strategist JJ Kinahan, alluding to Biden’s US$2 trillion infrastructure plan announced last week.
Some of the volatility is also the result of investors trying to navigate shifts in the market as the economy rebounds with more people vaccinated against COVID-19 and technology shares that prospered during lockdowns lose some of their luster.
“Enterprising investors know they need to find other vehicles besides software, social networks and e-commerce stocks,” Volokhine said. “They’re looking for ways to make more money.”
Implosions such as Archegos’ can happen when funds are “looking to differentiate their returns, which is harder do in a bull market,” Kinahan said.
The churn in the market is sparking talk of more financial regulation. In the wake of GameStop, lawmakers have grilled online trading platform Robinhood over its moves to temporarily restrict trading amid the frenzy.
Robinhood, which itself plans to go public, has also been questioned about its relationships with hedge funds that do business with it.
The Archegos debacle has focused debate on swaps, derivative transactions that can allow big, high-risk bets with small upfront payments.
The opacity of the swaps market makes it a prime candidate for new rules from the Securities and Exchange Commission, Volokhine said.
After several years flying high as Asia’s best Nvidia Corp proxy, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is increasingly vying with other artificial intelligence (AI) stocks for investor attention. Stock traders are chasing a wider array of beneficiaries as mainstream usage of AI creates demand for hardware beyond the most-advanced chips TSMC makes for Nvidia. Subthemes from the deepening memory crunch to advances in robotics are also luring bids. At the same time, investment caps on single stocks are pushing funds to diversify, while retail investors long familiar with TSMC through its US depositary receipts are being offered a broader set of
UNDER MICROSCOPE: Taiwan detained three people who allegedly conspired to buy servers in Taiwan and export them using fraudulent documentation, prosecutors said Nvidia Corp chief executive officer Jensen Huang (黃仁勳) on Saturday urged Super Micro Computer Inc to tighten up on compliance after Taiwan detained three people this week for allegedly making fraudulent declarations about artificial intelligence (AI) servers made by its US partner. The development marked the nation’s first crackdown on semiconductor smuggling, which grew after the US slapped restrictions on exports of high-end chips such as Nvidia AI accelerators to China. Nvidia is “rigorous” in explaining regulations to all of its partners, Huang told reporters after arriving in Taipei. “Ultimately Super Micro has to run their own company,” he said in response to
TECH RELIANCE: Growth is increasingly reflecting an unequal K-shaped distribution, where technology sectors outperform and other industries struggle, an expert said Standard Chartered Bank has significantly raised its forecast for Taiwan’s economic growth to 9.5 percent this year, up from 7.6 percent previously, citing surging artificial intelligence (AI) demand driving exports, semiconductor production and investment. The upgrade reflects a sustained AI supercycle that continues to fuel demand for advanced chips and technology infrastructure, which form the backbone of Taiwan’s exports, the bank said in a report this week. “We raise our 2026 growth forecast to reflect a much stronger-than-expected first-quarter GDP figure,” Standard Chartered senior economist for greater China and Asia Tommy Wu (胡東安) said in the report. Driven largely by a 35.3 percent
Two of Taiwan’s international carriers, Starlux Airlines Co (星宇航空) and EVA Airways Corp (長榮航空), have retained the five-star airline rating awarded by international airline review organization Skytrax. Starlux was awarded the distinction for a second consecutive year, while EVA Air received it for the 11th straight year, Skytrax said in statements released yesterday and on Thursday last week, respectively. The five-star rating is considered one of the airline industry's highest honors and is awarded following professional audits of airline product and frontline service standards, Skytrax said. The ratings are based on in-depth assessments using unified global quality standards rather than customer review scores
RSS