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Retail Investors Lose Ground to Korea’s Returning Short Sellers


Global funds have piled back into short selling South Korean stocks in the two weeks since authorities lifted a ban on the divisive investment strategy.

While the benchmark Kospi Index has held up amid a decline in regional peers during this period, pain has been felt in Korean stocks favored by the nation’s legions of retail traders.

Short selling has been most evident in healthcare and technology stocks popular with mom-and-pop investors, as well as shares of companies that missed inclusion in MSCI Inc.’s indexes. With overseas funds betting against 6.1 trillion won ($5.4 billion) worth of Korean stocks over the period, there has been a net outflow of money abroad from the country’s share market.

Jo Yelin, who works for a Seoul-based software startup firm and trades shares in her spare time, is looking to ride out any dips in the market with a conservative approach. She’s also drawing on lessons learned from dabbling in U.S. equities, where a battle between retail traders and short sellers has pushed stocks like GameStop Corp. to dramatic highs and lows.

“I’m not going into any companies that could see similar events,” said 30-year-old Jo, who is one of Korea’s estimated 9 million individual equity investors and holds some of the most-shorted stocks, including Samsung Electronics Co. and Naver Corp. “I only have blue chips so I’m not too worried. I expect they’ll go up eventually.”

Korean indexes fluctuate but outperform Asia's benchmark

Bio-pharmaceutical company Celltrion Inc. was the most shorted stock by value in the first seven days since the ban was lifted, with 235 billion won worth of bets against its shares.

The stock slumped 6.2% to a six-month low on May 3 but has clawed back its losses since then. Retail traders didn’t lost hope, adding more Celltrion shares to their portfolios in the period through May 12.

The favorite stocks of individual investors over the seven days, measured by net purchases, were Samsung, Naver and Hyundai Motor Co. Samsung and Naver were also the third and 13th most shorted-stocks by value and have dropped over the past two weeks. Hyundai is up, despite being 10th on the target list of short sellers.


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