Obtain free Equities updates
We’ll ship you a myFT Each day Digest e-mail rounding up the newest Equities information each morning.
A military of South Korean retail merchants has sparked a nine-fold rise within the shares of a battery supplies producer because it takes on hedge funds betting in opposition to the corporate’s inventory.
The person traders — recognized regionally as “ants” — have purchased a internet Won3.1tn ($2.45bn) of shares in EcoPro and its subsidiary, cathode producer EcoPro BM, in an episode with echoes of the US “meme inventory” craze, the place small merchants used platforms reminiscent of Reddit to whip up enthusiasm for beforehand unloved shares.
EcoPro’s rally of 833 per cent this yr has come as greater traders ramp up their brief positions, or bets that the inventory will fall. Quick positions in EcoPro shares have surged from Won54bn firstly of the yr to Won1.3tn, based on knowledge from Korea Trade. EcoPro BM shares have gained about 200 per cent yr to this point.
However South Korean retail traders, who name themselves ants due to their capability to behave as a strong collective, preserve shopping for shares.
Spurred on by common YouTubers together with Park Quickly-hyuk, a former chemical firm govt often known as “Mr Battery”, the retail traders have shrugged off warnings that the inventory is overvalued.
EcoPro and EcoPro BM “are typical meme stocks”, stated Chan Lee, managing accomplice at Petra Capital Administration, a Seoul-based hedge fund. “They’ve turn out to be too costly even when you issue of their future development potential.”
EcoPro’s working revenue jumped sevenfold from Won86bn in 2021 to Won613bn final yr. However its price-to-earnings ratio is sort of 700 instances, in contrast with 267 for fellow Korean battery materials producer Posco Future M, 166 for battery maker LG Vitality Resolution, and 31 for cathode producer L&F.
Retail traders are betting that South Korean battery makers and materials producers will profit from a booming market in electrical autos and US president Joe Biden’s landmark programme of subsidies for clear vitality.
The laws restricts using Chinese language elements in inexperienced applied sciences if they’re to qualify for beneficiant US tax credit, doubtlessly eliminating competitors for Korean corporations.
However analysts at Goldman Sachs warned final month that the worldwide cathode market could also be oversupplied over the subsequent decade, advising traders to promote shares in EcoPro BM and Posco Future M.
“It’s a scorching sector and their earnings are enhancing. However there’s a bubble even when Korean battery makers are capable of steal China’s market share,” stated Lee.
EcoPro shares dipped briefly in April and once more in Might when firm founder Lee Dong-chae was sentenced by a Seoul court docket to 2 years in jail for violations of South Korea’s capital market legal guidelines. However the inventory rallied once more in June, inflicting heavy losses on brief sellers.
“It’s laborious both to purchase them or to brief the shares, as brief overlaying can be boosting their costs,” stated An Hyung-jin, chief govt on the Seoul-based hedge fund Billionfold Asset Administration.
“Retail traders are loopy in regards to the shares so brief sellers discover it more and more tough to resist their ballooning losses,” An added. “Beginner merchants are profitable the battle in opposition to the brief sellers.”
The stand-off has drawn comparisons with GameStop, a US online game retailer whose share worth was pushed up by retail traders in 2021. It comes as traders have spent virtually $200mn buying and selling theoretically nugatory shares in Mattress Tub & Past for the reason that retailer went bankrupt firstly of Might, within the newest iteration of the US meme inventory phenomenon.
The wave of newbie Korean merchants resurfaced this yr after they mounted a short marketing campaign two years in the past, impressed by their US counterparts’ frenzy shopping for of GameStop, to wager on biotech corporations reminiscent of Celltrion and HLB, which had been focused by short-sellers.
However Park, the YouTuber often known as Mr Battery, stated the comparability was misplaced. “They don’t seem to be Korea’s GameStop, which is a failing firm, however extra just like the Tesla of Korea,” Park stated. “Quick sellers betting in opposition to them are struggling large losses.”
SY Park, a tech start-up worker in his early 30s who is not any relation to Mr Battery and declined to provide his full title, stays unconcerned about analyst warnings that the EcoPro shares are overvalued.
“I briefly considered a bubble however the firm is the main cathode producer,” he stated, noting that he has made a 480 per cent return on his Won14m funding in EcoPro BM shares.
“The share worth retains rising so I don’t fear about it any extra. The corporate is more likely to proceed to signal large provide contracts.”
