Retail Investors Flock to Bankrupt US Companies... "Like Catching a Falling Knife"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Individual investors in the United States are flocking like moths to flame toward companies that have filed for bankruptcy. This reflects the expectation that companies driven to bankruptcy by the novel coronavirus disease (COVID-19) will recover with government financial support, with the intention of "making a big profit." It resembles the American version of the Donghak Ant Movement.

According to Bloomberg and other sources on the 9th (local time), the stock price of Hertz, the second-largest car rental company in the U.S., closed at $4.18 per share that day. Hertz filed for bankruptcy protection on the 22nd of last month, and its stock price fell to 56 cents on the 26th of the same month but then began to surge. The previous day, it rose to $6.25, showing an increase of more than 1000% in just two weeks.

The stock prices of energy company Chesapeake Energy and oil drilling company Whiting Petroleum have also risen significantly compared to last month. Chesapeake Energy's stock price rose from $8.71 on the 14th of last month to $21.96 on the 5th and $69.92 on the 8th. On that day, it plunged to $23.75. According to Bloomberg data, more than 20 million shares of Chesapeake Energy were traded in a single day, marking the largest intraday volume. Whiting Petroleum, which announced its bankruptcy in April, saw its stock price rise from 29 cents on April 3rd to $3.45 on the 8th of this month, and department store JCPenney's stock price also jumped tenfold in the past ten days.

The surge in these companies' stock prices was driven by individual investors. According to Robintrack, which tracks the flow of individual investors using the small investment application Robinhood, the number of Hertz shareholders currently stands at 159,000, more than four times the 37,000 a month ago. Chesapeake Energy's shareholders increased by 9,000 in recent days. Whiting Petroleum's shareholders increased by 50,000 just this week, and more than 104 million shares were traded in the market on the 8th alone, Bloomberg reported.

Peter Bookba, Chief Investment Officer (CIO) of Blickly Investment Group, said, "We are currently seeing a clear 'froth' in parts of the market," adding, "Speculation has occurred as individual investors' activities have surged sharply." Paul Maccamsan, a stock portfolio manager at Newton Investment, evaluated, "These stock purchases are bets by individual investors that these companies can emerge from bankruptcy under Chapter 11 of the U.S. Bankruptcy Code or that there will be additional government intervention to save these companies, leading to a significant recovery."

Experts warned that investing in bankrupt companies with expectations of government intervention carries high risks. Christopher Grisanti, Chief Strategist at MAI Capital Management, said, "Individual investors are flocking, but institutional investors are not buying this type of stock," expressing concern, "The risk is too high. It's like trying to catch a falling knife."

This content was produced with the assistance of AI translation services.