In the KOSDAQ market, EcoPro and EcoPro BM, long seen as representative short-selling targets, are extending gains as buying for short covering (closing short positions) by short sellers flows in. With the burden of short-selling losses rising after a rapid surge in a short period, short positions are being unwound quickly.
According to the Korea Exchange (KRX) on the 30th, EcoPro BM closed the previous trading day at 246,000 won, up 7.42% from the prior session. EcoPro also ended the day up 2.02% at 172,000 won. On the day, buoyed by the sharp rise, the two stocks each recaptured the No. 1 and No. 2 spots in KOSDAQ market capitalization, overtaking Alteogen.
The recent uptrend is even steeper. From the 22nd to the 29th, EcoPro BM jumped 53.63% and EcoPro soared 80.86%, far outpacing the KOSDAQ index's gain (22.4%) over the same period. However, after six straight sessions of sharp gains, profit-taking has emerged, putting the stocks down around 2% intraday.
As prices have surged in a short span, short covering by short sellers is becoming clear. Short covering refers to transactions in which investors who shorted the stock on expectations of a decline buy back the borrowed shares to prevent further losses.
In fact, during the past week (Jan. 22–29), EcoPro (No. 2) and EcoPro BM (No. 3) ranked among the top stocks on the KOSDAQ in terms of repayments of stock lending balances (funds poised for short selling). According to Koscom Check, over this period the estimated average cumulative short-selling prices were 210,000 won for EcoPro BM and 140,000 won for EcoPro.
The decline in short interest is also large. EcoPro BM's net short balance, which reached 3.5 million shares early this month, fell from 3.32 million to 2.86 million shares around the 26th, when the stock jumped 19% in a single day. On the same day, EcoPro also surged 22%, and its net short balance plunged from 8.75 million to 7.86 million shares.
A quant researcher at a securities firm said, "EcoPro and EcoPro BM have been major targets of short sellers last year," adding, "With the recent sharp rise, short positions are being rapidly closed, leading to a price increase due to short covering (a short squeeze)."
Meanwhile, along with the short squeeze, buying through exchange-traded funds (ETF) is also driving the rally. With expectations for a broad market rise growing under KOSDAQ activation policies, analysis suggests ETF funds are flowing into top market-cap stocks.
Kim Jong-yeong, a researcher at NH Investment & Securities, said, "Recently, retail money tends to flow in through ETFs rather than individual stocks," adding, "Thus, in the early phase of an index upturn, stocks with high short-interest ratios among the top market-cap names are likely to outperform."
However, some note it is difficult to be optimistic that a short-covering-driven rally will continue. This is because new stock lending transactions of a similar scale are occurring alongside the unwinding of short positions.
In fact, over the past week (Jan. 22–29), EcoPro BM's stock-lending repayments (2.8 million shares) nearly matched new stock-lending executions (2.72 million shares). EcoPro likewise saw 4.94 million shares in repayments, while new stock-lending executions over the same period totaled 4.13 million shares.