Thursday, October 24, 2019
Hedge Funds, Short Sellers Targeting Weak Points of Korean Companies
Their Way to Take Profits
Hedge Funds, Short Sellers Targeting Weak Points of Korean Companies
  • By Jung Suk-yee
  • May 1, 2018, 14:25
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The amount of short selling is showing a rapid increase these days in the South Korean stock market.
The amount of short selling is showing a rapid increase these days in the South Korean stock market.

Concerns are growing as foreign hedge funds and institutional short sellers are increasingly attempting to take advantage of South Korean enterprises’ difficult business situations and tasks related to governance structure reform. The amount of short selling is showing a rapid increase these days in the South Korean stock market.

According to industry sources, the ratio of short selling amounted to an average of 23% from April 23 to 26 after Elliott Management make suggestions about corporate governance reform in the Hyundai Motor Group. The short selling trading volume and value reached 240,000 shares or so and 38.2 billion won on April 30 in the wake of the negative earnings surprise on April 26 although the volume is normally less than 100,000 shares.

This is not the first time that Elliott Management’s suggestions led to short selling. Samsung C&T went through the same thing three years ago before its merger with Cheil Industries.

According to the Korea Exchange, the short selling in Samsung C&T totaled 578,171 shares and approximately 43.07 billion won (US$38.7 million) on June 5, 2015, the largest since records began in 2008. From June 1 to 3, immediately before Elliott Management’s share purchase announcement, the average amount stood at 7,000 shares or so, which means the activist hedge fund’s offensive move resulted in a rapid increase in short selling.

Although some people are saying that Elliott’s suggestions can have a positive effect on South Korean companies’ stock prices, the market consensus is that what Elliott aims to do is to disturb them. This is because foreign hedge funds in the South Korean stock market have taken profits by boosting their stock prices on repeated occasions.

In 2003, Sovereign became the largest shareholder in SK by buying 14.99% of its shares. Then, it went away with 900 billion won (US$810 million) in two years. In 2004, Hermes Investment Management bought 5% of Samsung C&T shares before taking approximately 30 billion won (US$27 million).