As bullish retail investor bets on South Korean electric-vehicle battery-related stocks drive one of the world’s best equity rallies, daily short-selling turnover has climbed to record levels.
(Bloomberg) — As bullish retail investor bets on South Korean electric-vehicle battery-related stocks drive one of the world’s best equity rallies, daily short-selling turnover has climbed to record levels.
Foreign funds have dominated the strategy of borrowing shares in order to sell them and then book profits by buying them back at a lower price. The increase in such transactions saw average daily short-selling turnover on both the Kospi and Kosdaq indexes reach new peaks in April, data analyzed by Bloomberg News show.
The surge comes as local individuals have fueled a more than 15% jump in the benchmark Kospi and a 34% rally in the Kosdaq gauge of smaller stocks this year. Both are outpacing a gain of about 8% in the S&P 500 Index in the period. The Kospi fell as much as 0.9% Thursday, but is still up nearly 19% from a September low.
The elevated short-selling turnover alongside strong index rallies indicates investors are divided over whether South Korea’s market is in a bubble or not, said James Lim, senior research analyst at Dalton Investments LLC.
“The global economy is slowing down so it’s surprising how the stock market is performing strongly in Korea,” Lim said. “Whether there is a bubble, it’s too early to tell.”
Posco Holdings Inc., among the most-shorted Kospi stocks, is also this year’s favorite among individual investors. Net purchases totaled 3.9 trillion won ($2.9 billion) as of April 19 amid bullish views over the steelmaker’s business in lithium, a key raw material for EV batteries.
Still, while Posco’s shares soared almost 50% this year, short-selling turnover in the stock this month spiked to the highest in more than a decade.
Read: Posco Stocks Add $11 Billion in Market Value on EV Battery Bets
The most shorted Kosdaq shares are EV battery-related and also day traders’ favorites: Ecopro BM Co. and Ecopro Co. They have skyrocketed by about 200% and 500%, respectively, this year.
Read: Korean EV Battery Stock That Rallied 647% Gets First Sell Rating
While foreign investors account for most short selling on the Kospi, they are also net buyers who have helped drive South Korea’s equity benchmark toward the 20% gain from a recent trough — meeting the definition of a technical bull market. Global funds have accumulated about $6 billion in local stocks so far in 2023 after being sellers for the past three years.
Samsung Electronics Co., the Kospi’s most valuable stock, has climbed 25% from a September low to drive gains in the benchmark. Battery maker LG Energy Solution Ltd. has given the second-biggest boost, followed by Posco Future M Co. During that period, the won strengthened some 8.5% against the dollar, making it Asia’s second best-performing currency.
In the Kosdaq, stocks related to EV batteries and artificial intelligence have posted the best gains.
“There’s a lot of hope with AI, chatGPT and the EV movement in the US,” said Jae Yoon, chief investment officer at New York Life Investment Management. “These companies that are rallying are companies that are aligned to these supply chains.”
Still, Yoon isn’t convinced the gains can be sustained. “I’m not a big supporter that this is a trend,” he said. “It’s a little early because we’re looking at a down-cycle.”
–With assistance from Hongcheol Kim and Hideyuki Sano.
(Updates with Thursday’s move in Kospi)
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