Over 65% of retail investors in emerging countries said social media plays a very or moderately important role when making investment moves, according to a new research report by the World Economic Forum (WEF). However, this is not the case in developed markets, where traditional information sources like newspapers and television “are more influential than social media,” the survey finds.
Retail Investors in Developed Countries Prioritize Traditional Media Sources
The World Economic Forum (WEF) published a new research report, “The Future of Capital Markets: Democratization of Retail Investing”, which provides insights into the emerging class of retail investors. Among other things, the report found that over 65% of retail investors in developing countries highly prioritize social media to inform their investment decisions.
“More than 65% of investors in emerging markets ranked social media as extremely or moderately important in making investment decisions, increasing the need to prepare investors to verify and understand information coming from social media.”the report states.
On the other hand, retail investors in developed markets such as the U.S., Germany, the U.K., France, and Japan mainly utilize conventional media sources including newspapers and TV to inform their investment decisions. However, younger retail investors aged between 18 and 35 also use prioritize social media to look for investment opportunities.
Recalling the Meme-Stock Frenzy
As proof that social media significantly affected retail investing trends, one should look no further than the meme stock frenzy in January 2021. At that time, a large group of young retail investors flooded Reddit and other online forums and significantly moved the market in their favor, causing major hedge funds to lose millions of dollars.
“Social media has made the accessibility and spread of (meme stocks) happen so much faster across geographic boundaries where people, who especially aren’t in finance and investing, get pulled in because of the story itself.”says Daniel Egan, director of behavioral finance at investing app Betterment.
Two stocks that saw unprecedented returns include GameStop and AMC Entertainment. While numerous retail investors made a fortune during that period, the hype was short-lived as over 50% of meme stocks were sold after several months.
Earlier this year, the U.S. House Committee on Financial Services released a 138-page document on how the meme stock frenzy exposed certain high-risk business practices and a need for regulatory reforms. One of the stock exchanges mentioned in the report that engaged in such practices was Robinhood, which was fined $30 million this week by the New York state regulator.
Originally Posted August 4, 2022 – 65%+ of Investors in Emerging Markets Use Social Media to Make Decisions: WEF Report
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