Subscribe to get Equities updates for free.
Every morning, we’ll send you a curated email digest of the latest Equities news in the form of a myFT Daily Digest.
A group of retail traders in South Korea has caused a nine-fold increase in the shares of a battery materials producer as they challenge hedge funds that are betting against the company’s stock.
The individual investors, known locally as “ants,” have purchased a net of Won3.1tn ($2.45bn) worth of shares in EcoPro and its subsidiary EcoPro BM, mirroring the “meme stock” phenomenon in the US where small traders used platforms like Reddit to generate enthusiasm for previously unpopular stocks.
EcoPro’s shares have surged by 833% this year as larger investors increase their short positions. Short positions in EcoPro have risen from Won54bn at the beginning of the year to Won1.3tn. EcoPro BM shares have also gained around 200% year to date.
Despite warnings about overvaluation, South Korean retail investors, who refer to themselves as ants due to their collective power, continue to purchase shares. Influenced by popular YouTubers such as Park Soon-hyuk, a former chemical company executive known as “Mr Battery,” these retail investors remain unfazed.
Chan Lee, managing partner at Seoul-based hedge fund Petra Capital Management, describes EcoPro and EcoPro BM as “typical meme stocks” that have become too expensive even when considering their future growth potential.
EcoPro’s operating profit increased sevenfold from Won86bn in 2021 to Won613bn last year. However, its price-to-earnings ratio currently stands at nearly 700 times, compared to 267 for fellow Korean battery material producer Posco Future M, 166 for battery maker LG Energy Solution, and 31 for cathode producer L&F.
Retail investors are betting that South Korean battery makers and material producers will benefit from the booming electric vehicle market and US President Joe Biden’s subsidy program for clean energy.
This legislation restricts the use of Chinese components in green technologies in order to qualify for generous US tax credits, potentially eliminating competition for Korean companies.
However, analysts at Goldman Sachs cautioned last month that the global cathode market may experience oversupply in the next decade, advising investors to sell shares in EcoPro BM and Posco Future M.
Lee remarks, “There is a bubble even if Korean battery makers are able to steal China’s market share,” while EcoPro shares temporarily dipped in April and May when the company’s founder, Lee Dong-chae, was sentenced to two years in prison for violations of South Korea’s capital market laws. The stock quickly rallied again in June, causing significant losses for short sellers.
An Hyung-jin, CEO of Seoul-based hedge fund Billionfold Asset Management, comments, “It is challenging to buy or short these shares, as short covering is also driving up their prices. Retail investors are crazy about these shares, making it increasingly difficult for short sellers to handle their mounting losses. Amateur traders are winning the battle against the short sellers.”
This standoff draws parallels with the GameStop situation in the US, where retail investors drove up the share price. Investors have also traded nearly $200mn worth of allegedly worthless shares in Bed Bath & Beyond since the retailer went bankrupt in May, highlighting the latest instance of the US meme stock phenomenon.
This year, amateur Korean traders have once again emerged after a brief campaign two years ago, inspired by their US counterparts’ frenzy surrounding GameStop, to bet on biotech companies targeted by short-sellers like Celltrion and HLB.
However, Park, the YouTuber known as Mr Battery, believes the comparison is inaccurate. He states, “They are not Korea’s GameStop, which is a failing company, but more like the Tesla of Korea. Short sellers betting against them are suffering big losses.”
SY Park, a tech start-up employee in his early 30s, remains unconcerned about analyst warnings of overvaluation. He declares, “The share price keeps rising, so I don’t worry anymore. The company is likely to continue signing big supply contracts.”
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
