Activism in social media raises risk of stock volatility
The greater presence of individual investors has brought a new dynamic to the stock market. These previously weaker investors, now a larger group often attracted by investment tips disseminated through social media, are showing they can also influence prices. The result has been more price ups and downs as this public has a short-term vision and seeks quick profits.
For investors, it's riskier to operate at artificially inflated price levels detached from the fundamentals of the companies amid the greater likelihood of price swings. For companies, dealing with this phenomenon is also challenging.
No company is free from that, but four were particularly affected last year: reinsurer IRB, phone carrier Oi, retailer Via Varejo and education company Cogna.
In common, they had shares priced below R$10, which ended up drawing interest. And they were the subject of debates on Twitter, in which social media influencers shared theses quite favorable to the companies - despite all, to a greater or lesser extent, face some turmoil.
Like Ibovespa, these stocks have been affected by increased price swings caused by the pandemic. But unlike Brazil's benchmark stock index, they maintained this behavior over the past year. Ibovespa started 2020 with a 21% volatility in annualized terms and exceeded 124% at the peak of the crisis, in early April. In July, the index had already returned to the 20% level and has remained there ever since.
The volatility of IRB shares went from 80% at the beginning of the year to more than 200% in late March, then fell to 45% in August and notched 120% in October. This year, it's in the 80% level. Oi saw the same behavior, with volatility going from 68% at the beginning of the year to almost 150% by the end of March. In June, the indicator fell again, to nearly 60%, and sees ups and downs since then.
IRB saw its individual shareholder base rise to 289,000 last year from 27,000 in 2019, even as it faced the most serious credibility crisis a company can experience. In March 2020, the reinsurer removed top managers after identifying balance sheet fraud that almost bankrupted the company and began a long process of adjustment.
Boosted by live-streamed talks on social media, the shares of Via Varejo have risen more than 400% in less than four months since they hit the minimum price of R$4.10 on April 3, even as the company had to close stores because of the pandemic last year. The individual investor base went to 400,000 from...
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