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Should KiwiSavers be worried about the GameStop sharemarket surge?

GameStop shares are surging as an online movement takes on Wall Street and now silver is on the way up too.

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Kristen Lunman tells Breakfast what the latest volatility means for mum and dad investors at home. Source: 1 NEWS

So, what does this all mean for the average investor - including those with KiwiSaver?

Sharemarket commentator Kristen Lunman says the war in the stocks is an "exciting showdown" between David and Goliath.

GameStop, a US video game retailer, has been struggling, particularly in the wake of the Covid-19 pandemic.

"They haven't moved online as quickly as their competitors, so it's a business that's going through rough times," Lunman told Breakfast.

"Now enter hedge funds. One of the things they do is find businesses that are struggling and they bet against the business."

They do that with a process called short-selling or "shorting" the stocks.

It means they borrow the stock, agreeing to return it at a later date, and sell it.

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"What they're hoping for, is after a period of time that share price is going to drop. So when they have to go back out to the market to pay back the stock, it's going to be a lower price," Lunman says.

"They get to buy back those stocks and they get to keep the difference and pay back the original stock and so really they get to keep that difference."

It's essentially betting the business' share price will go down, while regular purchasing of stocks bets the price will go up.

The online movement, driven by Reddit's WallStreetBets forum, meant there was a major drive for people to purchase the stocks - seeing the GameStop share price skyrocketing, instead of dropping as the investors hoped.

"They have to buy back the stock at much higher prices, therefore losing money when they have to go back and pay back the stock that they've borrowed," Lunman says.

For the Reddit traders, she says it's more about knocking billions off the hedge funds than making a personal profit.

"It's this concept of rebellion and really some actually don't care about the money that they've put in," Lunman says.

"They simply just want to create some change and a movement against these hedge funds that bet against struggling businesses."

For the everyday investor, including people with KiwiSaver, Lunman says you can probably rest easy.

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"It's very unlikely that your investments are invested in these types of businesses and so it's likely this is kind of happening in a corner of the share market," she says.

"If you're a long term investor, you can sleep well at night over, you know the share market is experienced lots from wars to pandemics, to crashes... It always has recovered and historically has gone up."

As for GameStop as a company, despite the sharemarket showing it's apparently doing very well, Lunman says that's not actually the case.

"Unless the owners of GameStop sell their shares to inject money into the business or they issue new shares, [it's] actually not helping the business a lot at all," she says. 

"At the end of the day, the business is still going through a pretty tough time." 

Outside the GameStop spike, silver has also soared to an eight-year high linked to the internet movement.

But it's not clear whether it's being driven by the same group of people.

Members of WallStreetBets on Reddit adamantly deny they're responsible and accuse hedge funds of anonymously posting on the forum to try and drive them from GameStop to silver, after setting up to profit from the commodity.