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Short selling

Kospi short sales hit $639 mn amid rate hike woes

LG Energy's IPO plan has driven short selling of EV battery stocks; large amount of overvalued stocks are shorted

By Jan 07, 2022 (Gmt+09:00)

Short sale monitoring center at the Korea Exchange's Seoul office
Short sale monitoring center at the Korea Exchange's Seoul office

Short selling on the Korean stock market is soaring rapidly on concerns over the US Fed Reserve’s interest rate hike. Particularly, a large amount of borrowed stocks in secondary battery-related chemicals, fintech and gaming firms were shorted.

The selling of borrowed stocks on the main Kospi bourse reached 767.9 billion won ($638.9 million) on Jan. 5, the highest amount after the 816.2 billion won ($679 million) on Nov. 30 of 2021, according to the Korea Exchange.

Short selling by Korean institutional investors amounted to 323.4 billion won on Jan. 5, the record high over the past year. Foreign investors’ short sales reached 436.3 billion won on the day. Short selling on the secondary Kosdaq bourse came in at 175.8 billion won.

Korea’s leading chemical maker LG Chem Ltd. was the most shorted stock of 52.4 billion won on Jan. 5. The shorted stocks were 15.3% of the company’s stakes traded on the day and worth more than fourfold of 12.7 billion won, the average price of the company’s short selling during the past 40 days.    

The huge amount of short selling occurred as LG Energy Solution Ltd., LG Chem’s 100% subsidiary and electric vehicle battery maker, is slated to go public on Jan. 27. The world’s No. 2 EV battery maker aims to raise 10.9 trillion won to 12.8 trillion won through the largest-ever IPO in Korea. 

Amid high expectations on LG Energy’s IPO, investors shorted a large number of stakes in other chemical makers manufacturing secondary battery materials. Short sales of stocks in SK IE Technology Co., ILJIN Materials Co. and POSCO Chemical Co. were 15.7 billion won, 8.8 billion won and 8.3 billion won on Jan. 5, respectively.

The short sold stocks in SK IE Technology, a chemical maker unit of Korean conglomerate SK Group, reached 26.6% of the chemical firm’s equities traded on the day. The supply and demand uncertainties will continue in secondary battery stocks for a while amid rate hike woes and LG Energy’s IPO, market watchers forecast.  

Investors worried about rate hikes flocked to short selling of some overvalued stocks in newly listed companies. Korea’s first-listed internet-only bank KakaoBank Corp., leading gaming company Krafton Inc. and payment service Kakao Pay Corp. topped the short selling list on the day with 30 billion won, 26 billion won and 14.7 billion won worth of short sales, respectively. The three companies were listed last year.

Shares in companies heavily impacted by the pandemic, such as travel and hospitality firms, have been sold short but remained uncovered. The short interest for Lotte Tour Development Co., conglomerate Lotte Group’s travel agency, reached 94.3 billion won. That is 7.7% of its market capitalization, the highest short interest ratio of a Kospi-listed company. Short interest for Hotel Shilla, Samsung Group’s luxury hotel and duty-free shop operator, was 6.6% of its market cap. Some 232.7 billion won worth of shares in cosmetics giant Amorepacific Group, or 2.4% of its market cap, have been shorted but left uncovered as well.

Pharmaceutical giant Celltrion Inc. topped short interest with 927.7 billion won. Krafton, container liner HMM Co. and OLED display manufacturer LG Display Co. followed with 720.9 billion won, 417.8 billion won and 393.1 billion won worth of short interest, respectively.

Write to Yoon-sang Koh at kys@hankyung.com

Jihyun Kim edited this article.
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