South Korean ‘ant’ traders battle hedge funds in swarm on battery shares

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An army of South Korean retail traders has sparked a nine-fold rise in the shares of a battery materials producer as it takes on hedge funds betting against the company’s stock.

The individual investors — known locally as “ants” — have bought a net Won3.1tn ($2.45bn) of shares in EcoPro and its subsidiary, cathode producer EcoPro BM, in an episode with echoes of the US “meme stock” craze, where small traders used platforms such as Reddit to whip up enthusiasm for previously unloved stocks.

EcoPro’s rally of 833 per cent this year has come as bigger investors ramp up their short positions, or bets that the stock will fall. Short positions in EcoPro shares have surged from Won54bn at the beginning of the year to Won1.3tn, according to data from Korea Exchange. EcoPro BM shares have gained about 200 per cent year to date.

But South Korean retail investors, who call themselves ants because of their capacity to act as a powerful collective, keep buying shares.

Spurred on by popular YouTubers including Park Soon-hyuk, a former chemical company executive known as “Mr Battery”, the retail investors have shrugged off warnings that the stock is overvalued.

EcoPro and EcoPro BM “are typical meme stocks”, said Chan Lee, managing partner at Petra Capital Management, a Seoul-based hedge fund. “They have become too expensive even if you factor in their future growth potential.”

EcoPro’s operating profit jumped sevenfold from Won86bn in 2021 to Won613bn last year. But its price-to-earnings ratio is nearly 700 times, compared with 267 for fellow Korean battery material producer Posco Future M, 166 for battery maker LG Energy Solution, and 31 for cathode producer L&F.

Retail investors are betting that South Korean battery makers and material producers will benefit from a booming market in electric vehicles and US president Joe Biden’s landmark programme of subsidies for clean energy.

The legislation restricts the use of Chinese components in green technologies if they are to qualify for generous US tax credits, potentially eliminating competition for Korean companies.

But analysts at Goldman Sachs warned last month that the global cathode market may be oversupplied over the next decade, advising investors to sell shares in EcoPro BM and Posco Future M.

“It is a hot sector and their earnings are improving. But there is a bubble even if Korean battery makers are able to steal China’s market share,” said Lee.

EcoPro shares dipped briefly in April and again in May when company founder Lee Dong-chae was sentenced by a Seoul court to two years in prison for violations of South Korea’s capital market laws. But the stock rallied again in June, inflicting heavy losses on short sellers.

“It is hard either to buy them or to short the shares, as short covering is also boosting their prices,” said An Hyung-jin, chief executive at the Seoul-based hedge fund Billionfold Asset Management.

“Retail investors are crazy about the shares so short sellers find it increasingly difficult to withstand their ballooning losses,” An added. “Amateur traders are winning the battle against the short sellers.”

The stand-off has drawn comparisons with GameStop, a US video game retailer whose share price was driven up by retail investors in 2021. It comes as investors have spent almost $200mn trading theoretically worthless shares in Bed Bath & Beyond since the retailer went bankrupt at the start of May, in the latest iteration of the US meme stock phenomenon.

The wave of amateur Korean traders resurfaced this year after they mounted a brief campaign two years ago, inspired by their US counterparts’ frenzy buying of GameStop, to bet on biotech companies such as Celltrion and HLB, which had been targeted by short-sellers.

But Park, the YouTuber known as Mr Battery, said the comparison was misplaced. “They are not Korea’s GameStop, which is a failing company, but more like the Tesla of Korea,” Park said. “Short sellers betting against them are suffering big losses.”

SY Park, a tech start-up employee in his early 30s who is no relation to Mr Battery and declined to give his full name, remains unconcerned about analyst warnings that the EcoPro stocks are overvalued.

“I briefly thought about a bubble but the company is the leading cathode producer,” he said, noting that he has made a 480 per cent return on his Won14m investment in EcoPro BM shares.

“The share price keeps rising so I don’t worry about it any more. The company is likely to continue to sign big supply contracts.”