Meme ‘stonks’ and the market

This is an audio transcript of the FT News Briefing podcast episode: Meme ‘stonks’ and the market

Marc Filippino
Good morning from the Financial Times, today is Thursday, June 24th, and this is your FT news briefing. Solar power investors are getting burnt by rising costs. And some tech groups in Taiwan are accused of locking up workers because of Covid. Plus the rise of meme stocks like GameStop and AMC have been exciting to watch. Our global finance correspondent talks about their impact on the market.

Robin Wigglesworth
Memes have gone from attempting to mock or reflect reality to, in some respects, helping distort it.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day. A Covid outbreak in Taiwan has tech manufacturers nervous about losing workers to the virus. In some electronics groups, including a Foxconn subsidiary and the Japanese electronics brand, Canon, are being accused of barring workers from leaving their dormitories except to go to work. And many of those workers are migrants. Our greater China correspondent Kathrin Hille broke this story.

Kathrin Hille
I started reaching out to workers and worker groups and this Serve the People Association, which is a labour group that has supported migrant workers for a long time. They just did a survey and they discovered that according to the hundreds of migrant workers they asked, 60 percent of those migrant workers reported that they are now under lockdown orders, whereas before the recent outbreak in Taiwan, that percentage had been only 30 percent. Well, only sounds a bit ironic because even 30 percent is, of course, far too much.

Marc Filippino
Wow. Yeah, 30 percent even before the lockdown. That really speaks to the mistreatment of migrant workers that was happening even before the Covid outbreak. Have you talked to any of these workers yourself, Kathrin?

Kathrin Hille
Yes, I have. Most of these workers are very anxious not to be quoted at all, even anonymously, because they fear losing their jobs. And in many cases, the countries they come from, the Philippines, Indonesia, Vietnam, Thailand, in some of their home countries, the pandemic situation is much worse than in Taiwan. So some of their family members have lost their jobs or sources of income. And so their wage here is the only source of family income. And that would be catastrophic financially for their family.

Marc Filippino
That we should say that the companies have responded and they’re saying that they’re under pressure from authorities and they’re doing this to avoid more workers getting sick. Right?

Kathrin Hille
Some companies have also put in place additional measures. For example, some Foxconn companies are giving out bonuses to the migrant workers who comply with the orders not to go out anywhere. And those who don’t, that extra money is then deducted from their pay. And companies, of course, have started more regular temperature checks. They’ve, in some cases reduced the density in the dorms. But that has often been because there were infections in those factories and part of the migrant workforce needed to be quarantined.

Marc Filippino
Kathrin Hille is the FT’s Greater China correspondent. Shares in solar energy companies have taken a hit this year after more than tripling last year. Investors are losing their appetite for the sector because of the rising cost of solar installations after a decade of cost declines, part of the reason solar installations spread so quickly. The FT’s Commodities correspondent Henry Sanderson says it boils down to raw materials.

Henry Sanderson
The price of polysilicon, which is the raw material for most solar cells, has risen by 160 percent this year. And then you take into account the price of steel, which is more than doubled from early 2020 to record levels. So you put those all together and we’re starting to see cost increases coming through. As a result, the price for silicon solar cells, modules that allow for the conversion of light into power have risen by a quarter from this time last year, according to Bloomberg New Energy Finance.

Marc Filippino
So, Henry, do you think this will affect the number of solar power installations?

Henry Sanderson
So what analysts say is that this could trim slightly the number of installations this year, but the pace of solar is still strong because governments are committed to a green recovery. Many have announced targets to reach net zero emissions. So the bigger picture is still very, very strong. But we could see some sort of trimming of solar installations this year, some postponement of projects. But the real question is, are these costs going to be passed on? You know, who’s going to take the burden of these cost increases?

Marc Filippino
Henry Sanderson is the FT’s Commodities correspondent. In financial markets, one of the big dramas has been the rise of meme stocks. These are volatile stocks whose trading is dominated by retail investors who often coordinate on social media. We’re talking GameStop, we’re talking AMC. They’re called meme stocks because they go viral, much like short videos and images known as memes, which are part of this trend as well.

Robin Wigglesworth
But over the past year, memes have gone ... kind of ... from attempting to mock or reflect reality or comment on reality ... to, in some respects, helping distort it.

Marc Filippino
That’s our global finance correspondent, Robin Wigglesworth. He says, just look at GameStop. Retail investors took on the hedge funds that were betting heavily against GameStop. Those investors got together, squeezed the short sellers and made a lot of money.

Robin Wigglesworth
But then that kind of devolved into just being this more generalised crusade against these imagined evils, short sellers that were burning down American capitalism and destroying jobs. You could just see where it went from being this was a really smart, canny financial move to being something that was an out of control narrative that people genuinely felt that short sellers, are these horrible, evil locusts, when that is just so wildly out of touch with what the reality is, that short selling has never been lower in US history pretty much. And in fact, short sellers do play a pretty important role in sniffing out malfeasance and dodgy companies.

Marc Filippino
But Robin, even if they are distorting reality, [00:06:44]they are a presence [0.1s] like them or not.

Robin Wigglesworth
Yes, exactly. And I don’t think we should overdramatise how terrible this is, because fundamentally memes, I see them as short form visual narrative and short form narrative has been an issue in markets for as long as markets have been around, whether it’s of old newspapers and telegrams were considered, would ruin markets back in the day because they spread rumours far quicker. So this isn’t new. What is new is how quickly things can spread and go global. This was something that became a global story because these memes travel so quickly through social media and I think you could kind of see the very subtle influence in other parts of markets or markets as a whole. Not in a huge way, but in a rising way, perhaps just reflecting the rise of retail trading, which is becoming a bigger force in markets.

Marc Filippino
Yeah, and to that point, do meme stocks or “meme stonks”, as they’re sometimes called, change the way that businesses appeal to investors? You know, the classic way was to attract investors by being a successful company, retail traders have kind of cut against that. And some companies have taken notice and really leaned into it, like AMC offering free popcorn to investors.

Robin Wigglesworth
Yeah, no, that’s a great question. And I do think that is something we’re really at the early stages of. The granddaddy meme stonk is Tesla, because Elon Musk showed that you could be an atypical CEO and run a company, a big company, in a very atypical way and still have a incredibly devoted army of retail investors who will buy your stock, and a few institutional investors to boot. Well, back in the day or historically, you know, companies have tried to seem conservative and then staid and serious, especially when it comes to dealing with investor relations issues. And those were norms that Elon Musk, to an extent, kind of trampled on. And then in the meme stonk phenomenon over the past 12 months, we can see differing reaction functions where a GameStop has not really taken advantage of the mania that surrounded its shares to the extent that, like you say, AMC has with both selling shares to the public, but also offering free popcorn is kind of embracing its meme stonk status. I think in the future, more companies are going to realise that is actually a viable way of staying in markets that you don’t need to appeal to boring investors, pension funds in Seattle and Wisconsin. You can actually appeal to retail traders and probably see your stock do even better.

Marc Filippino
That’s the FTs global finance correspondent Robin Wigglesworth. Before we go, even Lego is going green. The Danish toybrick maker wants to move away from oil based plastics by 2030. It’s been struggling to find a recycled material that will allow pieces to stick together, yet be pulled apart. Now, it may have found it. Recycled drinks bottles, PET bottles, as they’re also known. Lego will test PET bottle bricks before moving to production. Now all we have to do is see if the new bricks don’t hurt as much when you step on them with your bare feet. You can read more on all of these stories at FT.com, this has been your daily FT news briefing. Make sure you check back tomorrow for the latest business news.