South Korean retain investors put the kybosh on short sellers by bidding up the stocks of shaky companies
Retail investors far more significant in South Korea compared to the U.S. making short selling a challenging and risky affair
In growing signs that the U.S. markets don’t have a monopoly on the meme stock frenzy, a South Korea power-plant builder has found itself being propped up by a legion of retail investors rushing to bolster its stock in a South Korean remake of Wall Street’s GameStop (+7.14%) saga.
Funds looking to short shares in Doosan Heavy Industries & Construction Co. (+2.76%) were in for a rude shock as shares in the embattled company have risen by over 160% from mid-May to its peak yesterday, a gain that sent its market cap to the highest level since 2008.
Shares in Doosan have since shed some 23% but such volatility underlines the tussle between South Korea’s retail investors and short sellers.
Unlike in the U.S., where institutional investors are responsible for the bulk of trades, the South Korean market leans heavily on retail investors.
Since the partial lifting of a ban on short-selling in May, Doosan has since emerged as one of the most shorted stocks on the South Korean stock exchange.
In echoes of the GameStop saga which saw Reddit forums alit with discussion on propping up the stock of the video game retailer, retail investors in South Korea, known locally as “ants” expressed hostility towards unspecified short sellers and called for solidarity among Doosan shareholders.
According to Korea Exchange Data, Doosan has now become the most bought stock by retail investors so far this month, but was also the most shorted company by value as of Tuesday.
But Doosan is hardly alone.
Just as GameStop had AMC Entertainment (+0.09%) and Microvision (-0.36%), Doosan’s ascent comes hot on the heels of the relentless rally in HMM Co. (-2.55%), the South Korean shipping liner that has soared some 263% this year alone, amid a buying frenzy and rising freight rates.
HMM Co. has since slipped around 11% from its peak, but retail buying activity remains strong.
And while HMM Co. may be cleaning up as global shipping costs soar, Doosan is cleaning out, with its parent company undergoing financial restructuring and asset sales to pay down its crippling debt.
Doosan faces a multitude of challenges though, and it’s a plucky investor who would take a punt on the company.
Once a revered coal-fired power plant builder worth US$18 billion in 2007, Doosan has tried to shift towards renewable energy generation even as local nuclear power plant demand fell and its overseas coal businesses virtually collapsed and is now worth just over half of its peak market cap, at US$9.5 billion.