Ecopro BM Bull Ant Suppressed by Institutional and Foreign Short Selling Pressure

Despite Increase in Short Selling Balance, Ecopro BM Stock Rises 35.8%
US 'GameStop' Trading Also Sees Individuals Outperform Institutional Short Sellers

While the domestic stock market remains sluggish, the stock price of EcoPro BM, a secondary battery-related stock, is soaring. In particular, EcoPro BM has attracted market attention due to a short-selling battle between individual investors and institutional and foreign investors. Institutional and foreign investors hold 'short (price decline)' positions, while individuals hold 'long (price rise)' positions, creating a tense standoff. EcoPro BM was even designated as a short-selling overheated stock, leading to a temporary ban on short selling.

EcoPro BM Designated as Short-Selling Overheated Stock

According to the Korea Exchange on the 9th, EcoPro BM was designated as a 'short-selling overheated stock' from the 7th to the 8th, resulting in a ban on short selling. This follows the enhanced short-selling overheated stock designation system implemented since October 24 last year. The criteria for identifying overheated short-selling stocks increased from three to four due to the system enhancement. In EcoPro BM's case, on the 7th, the short-selling transaction amount was five times the 40-day average (January 4 to March 5) of 26.5 billion KRW, and the short-selling ratio exceeded 5% (Type 3), leading to the ban on short selling.

After being designated as a short-selling banned stock, if the stock price falls more than 5% on the ban day (or extended ban day), the ban period is extended to the next trading day. EcoPro BM's stock price fell 5.30% on the 7th, extending the short-selling ban until the 8th.

EcoPro BM's short-selling balance amount briefly increased in January before turning downward. However, it rose again to 397.5 billion KRW on February 17, 443.4 billion KRW on February 23, and 470.9 billion KRW on February 28.

A parody targeting foreigners and institutions engaging in short selling, while individual investors positively evaluating the prospects of the secondary battery business such as EcoPro BM, is circulating in stock discussion rooms and bulletin boards.

The short-selling balance amount refers to the current value of borrowed shares intended for sale. It represents the total amount of shares borrowed for short selling but not yet executed. An increase in the short-selling balance generally indicates betting on a stock price decline and a large volume of pending short-selling shares. Some interpret the loan balance, an indicator of borrowed shares not yet repaid, to gauge short-selling sentiment. However, since loan balances can also increase when anticipating price rises, this interpretation is considered inaccurate.

Despite the increase in short-selling balance (betting on price decline), EcoPro BM's stock price is on the rise. Since the beginning of this month, it surged 35.8% from 159,700 KRW (on the 2nd) to 217,000 KRW (on the 6th).

From the 6th, individual investors have net purchased EcoPro BM shares worth 266.3 billion KRW over three trading days. In contrast, foreign and institutional investors net sold 161.7 billion KRW and 112.4 billion KRW, respectively, during the same period. Notably, institutions recorded net sales on all days except one (March 3) since February 17. Although not all net sales by institutions and foreigners are short sales, considering the latest short-selling balance of 485.2 billion KRW on the 6th, the short-selling volume is estimated to be substantial.

An executive from an asset management firm explained, "Mainly, institutions and foreigners seem to have recently engaged in short selling, judging that EcoPro BM's valuation is excessively high. However, individuals are absorbing their volume, including short sales, driving the stock price up." He added, "If the stock price of a short-selling target does not fall when it should, short sellers must buy back at high prices to cover their positions. During the previous Celltrion short-selling incident, some institutions and foreigners suffered losses due to aggressive short selling." The process of buying back borrowed shares to repay short positions, known as 'short squeeze' or 'short covering,' is also interpreted as influencing EcoPro BM's stock price rise.

U.S. 'GameStop' Short Squeeze Causes Institutional Losses

A representative case of institutions suffering losses due to a short squeeze after attempting short selling is the U.S. company GameStop. GameStop is a U.S. video game retailer whose stock price was around $20 per share at the end of 2020 but surged 1,745% to surpass $347 on January 27, 2021, within two months.

The start was hedge funds' short selling. Hedge funds such as Melvin Capital and Citron Research took large short positions, negatively evaluating GameStop's prospects. At that time, GameStop's short-selling balance theoretically exceeded 100% of the borrowable shares.

A GameStop store that became the main target of short-selling institutional investors in the United States. (Photo by EPA Yonhap News)

In response, individual investors declared war on hedge funds' short selling through the Reddit stock discussion forum 'WallStreetBets,' and retail investors began buying shares. Eventually, hedge funds incurred significant losses and liquidated their short positions, making headlines.

GameStop's stock price surge was largely due to the cohesion of individual investors opposing short sellers. At that time, U.S. retail investors targeted stocks with high short-selling ratios such as AMC Entertainment and BlackBerry, attracting market attention.

Stocks that rapidly rise due to online word-of-mouth and become a hot topic are called 'meme stocks.' A securities firm's secondary battery research analyst explained, "In Korea, secondary battery stocks seem to have risen significantly due to a 'meme stock' phenomenon similar to the U.S." The analyst added, "Institutional investors typically buy or increase positions only when they are confident of undervaluation or significant profitability improvement momentum, so they cannot be criticized solely for taking short positions. Unlike the U.S., it is usually difficult for individuals in Korea to confront institutional and foreign short sellers, but such a case occurred with EcoPro BM."

SM Entertainment (SM) saw a sharp increase in short-selling balance starting from February 24 (4.12114 billion KRW). Subsequently, the short-selling balance was recorded at 7.52416 billion KRW (February 27), 13.84077 billion KRW (February 28), 15.53766 billion KRW (March 2), and 11.31249 billion KRW (March 3).

The increase in short-selling balance is interpreted as stemming from expectations that the stock price would fall as the management dispute subsided. This was largely influenced by former SM chief producer Lee Soo-man's injunction request to prohibit new share issuance and convertible bond issuance by Kakao.

Contrary to expectations that the management dispute would be resolved, Kakao announced a surprise tender offer on the 7th, causing SM's stock price to surge. SM's stock price rose 31.7% from 120,300 KRW (closing price on February 27) to 158,500 KRW on the 8th.

Of course, the main buyers of SM differ somewhat from those of EcoPro BM. Over the past month (February 8 to March 8), only foreign investors net purchased 62.3 billion KRW. Individuals and institutions net sold 98.628 billion KRW and 208 billion KRW, respectively. However, individual net purchases are increasing again amid expectations of a tender offer price hike.

This content was produced with the assistance of AI translation services.