Day Traders in Duel With Short-Sellers Over Korea Meme Stock
(Bloomberg) -- Funds looking to short shares in a South Korean power-plant builder are meeting resistance from retail investors rushing to bolster the stock, in an echo of what happened on Wall Street with GameStop Corp. earlier this year.
Doosan Heavy Industries & Construction Co. surged 160% from mid-May to a Monday peak, a gain that sent its market value to the highest level since 2008. The stock slumped 21% on Tuesday after hitting levels that indicated it was overbought, before rising 3% in trading today.
Such volatility underlines the tussle between South Korea’s influential retail investors -- many of whom refer to the stock online as “Doosla”, a portmanteau of Doosan and Tesla Inc. -- and short sellers. Doosan Heavy, which builds nuclear and coal-fired plants, is among the most shorted stocks since the partial lifting of a ban on short-selling in May, according to Korea Exchange data.
The struggle will sound familiar to those who’ve tracked U.S. meme stocks such as GameStop and AMC Entertainment Holdings Inc. Some of Wall Street’s top brokers have recently quietly tightened their rules for who can bet against the most-popular meme stocks, according to people familiar with the steps.
“Because retail shareholders are buying Doosan Heavy in such numbers, funds that have short positions are indeed facing challenges,” Lee Dong-Heon, an analyst at Daishin Securities Co., said by phone.
Doosan Heavy has been the most-bought stock by retail investors on the Kospi so far in June, according to Korea Exchange data. It was also the most-shorted name by value on Tuesday, the data show.
All of this comes after South Korea in early May lifted what was the world’s longest pandemic-imposed short-selling ban. That’s posed a threat to retail traders, who have helped drive local stocks to record levels.
A keyword search of short-selling turned up nearly one thousand posts on Tuesday alone in the online forum dedicated to discussing Doosan Heavy shares on Naver, South Korea’s most-visited internet search portal. Most users -- retail investors known locally as “ants” -- expressed hostility toward unspecified short-sellers and called for solidarity among “Doosla” shareholders.
One post urging Doosan Heavy investors to send “bone-chilling messages” to short sellers got about 700 views and more than 50 likes on the forum. Hundreds of other posts discussed tips and ways to squeeze short sellers.
Doosan’s rapid gains echo other stocks picked by retail investors including HMM Co., the shipping liner that rose 263% this year through May 27 amid a buying frenzy, as well as rising freight costs. It has since fallen almost 14% from those levels and remains a target for short sellers.
Lotte Tour Development Co. and Doosan Infracore Co. have recently been among other names targeted by short sellers, according to data from the Korea Exchange.
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Analysts such as Lee have refrained from issuing target prices or recommendations on Doosan Heavy while its parent Doosan Group undergoes financial restructuring and asset sales as it looks to repay debt.
Doosan Heavy is trying to transition from coal-fired power plant construction toward wind power and other forms of renewable energy generation. Once valued at nearly 20 trillion won ($18 billion) during its 2007 heyday, it saw its market value shrink below 5 trillion won for years as local nuclear power plant orders dropped while it phased out overseas coal businesses.
It had a market cap of about $10 billion as of Wednesday.
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