Cheah Cheng Hye

GameStop’s wild ride and other risks just add to China’s appeal as a safe haven

A majority of Asian stock markets are relatively smaller and less liquid than those in the West, perhaps giving less scope for buying frenzies. Indeed, China is looking attractive as a haven for global investors seeking to hedge against rising risks

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An elderly woman shops in Beijing. The Chinese economy has made a V-shaped recovery from the pandemic, and the government’s emphasis remains on social and financial stability. Photo: AFP

Cheah Cheng Hye

Published: 3:30pm, 3 Feb 2021Updated: 4:31pm, 3 Feb 2021

The social media-fuelled mania in stocks like GameStop could trigger a global political crisis. Inevitably, this frenzy will end in widespread losses because such trading decisions are not based on fundamental value, but are a kind of internet gaming on a massive scale.

When losses build up, there could be an explosion of anger, and protest movements like Occupy Wall Street could return. Then, it would be difficult for the world’s central banks to increase interest rates even when it becomes necessary, as central bankers would be held hostage by the need to appease the crowds.

Governments could be held hostage too, as it would be hard to cut back on subsidies for businesses and ordinary people. The net result would be that badly affected countries could become ungovernable. Rising debt and money printing erode the purchasing power of paper money and stoke inflation.

This, of course, is a worst-case scenario and let’s hope it doesn’t happen – but the risk is that it could.

The underlying issue, as has been the case for many years, is frustration and jealousy stirred by income stagnation for most people and wealth accumulation for a privileged few. In mature economies that lack growth drivers, this is a systemic crisis that will persist.

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Hong Kong unveils mega relief package, tightens measures as imported coronavirus cases rise

The Robinhood/GameStop mania is but the latest example of the resentful little guys banding together to attack the elite. All over the world, governments may be trying to find ways to defuse similar situations, and it won’t be easy because of the power of social media and the madness of crowds.