Korea’s battery rally fell, leading to big losses among some investors

The latest surge in battery stocks, such as POSCO Holdings Inc. and EcoPro Co., led to a price plunge on Wednesday. Severe daily fluctuations of stock price have been rare in normal times unless the stock market suffers a global economic crisis or contagious pandemic.

The fluctuation of over 20 percent within the same trading day led the investors who newly joined the bandwagon to a massive loss amid growing fear of missing out (FOMO) among retail investors.

The sentiment has turned unwary investors into battery stocks, resulting in setting record prices on Wednesday morning. However, as of 13:00, there was a notable shift in the market dynamics. The stock prices took a sharp nosedive as profit-taking activities surged.

POSCO Holdings, a company with a substantial market capitalization of 53 trillion won ($41.5 billion), went through a tumultuous ride reminiscent of a recently listed public stock, with its daily fluctuations reaching 21.6 percent.

LS Electric Co., a stock associated with batteries and attracting investors seeking the next success stories, experienced a sharp plunge of 17 percent on the same day, following a rise of 25 percent on July 25 from the previous trading day.

“The plunge suggests that the overblown market has been cooled down in a swift manner,” said Chung Myung-ji, in charge of the investment information team at Samsung Securities Co.

Market insiders described Wednesday as the day of battery stocks. Other major battery stocks, such as Samsung Electronics Co. and SK hynix Inc., witnessed a subsequent decrease in price as retail investors rushed to battery stocks. In particular, though SK hynix posted upbeat earnings amid a rise in the Philadelphia Semiconductor Index, known for its ability to foreshadow the share prices of semiconductor giants, other major players in the semiconductor industry saw their stock prices decline as retail investors directed their attention and buying activity towards POSCO-related shares.

The Kosdaq market managed to reach the 900 mark following a sharp decline of 4.18 percent. The market expressed a record volatility of 7 percent during the same day, as the dramatic fluctuations in the stock prices of Kosdaq’s leading battery companies, EcoPro BM Co. and EcoPro, sent shockwaves throughout the entire market.

The trading volume on Kosdaq set a historic record.

Stock prices of EcoPro are marked on the stock terminal of the Korea Exchange in Yeouido, Seoul on July 26. [Photo by Kim Ho-young]

The benchmark Kospi, full of major stocks, experienced similar developments. The share prices of POSCO Holdings and POSCO Future M, which have led the benchmark, showed record fluctuations.

At 12:40 p.m., POSCO Future M saw a significant increase of 16 percent from the previous day, reaching 694,000 won. However, the situation changed after 13:00 p.m. as the stock prices of POSCO Holdings, EcoPro, and EcoProBM started to adjust simultaneously. By 14:00 p.m., POSCO FutureM had declined to 523,000 won, marking a 12.5 percent drop compared to the previous day’s closing prices. In a swift turn of events, EcoPro also experienced a sharp decline, plummeting to 1.13 million won per share within just 50 minutes after initially surging by 19 percent to 1.53 million won from the previous day’s closing price.

Such severe fluctuations resulted in a surge in trading volume. Kosdaq saw its daily trading volume set a record of 26.2 trillion won.

The trading volume in battery stocks increased by 30 times. The daily trading volume of POSCO Holdings, which stood at 201.6 billion won by the end of last month, experienced a remarkable surge, reaching 8.576 trillion won on Wednesday. Similarly, POSCO Future M, with a trading value of 158.6 billion won at the end of the previous month, saw a substantial increase, soaring to 3.75 trillion won. As for EcoPro, its trading volume at the end of the last month was 493.8 billion won, but it surged to an impressive 4.13 trillion won. The combined trading volume of POSCO Holdings and EcoPro accounted for around 19.4 percent of the total trading volume of the Korean stock market.

For certain stocks, the sharp plunge in share price was attributed to the rise in short sellers. On Kosdaq, the short volume on EcoProBM surged to a staggering 6.22 times higher than the average volume of the previous 40 trading days. LS Electric, a Kospi-listed stock, experienced an even more significant increase in short volume, reaching 16.99 times higher than its average volume of the last 40 trading days.

In response to the surge in short volume on EcoProBM and LS Electric, financial authorities banned the short-selling of the two stocks. Investors cannot short-sell the stock on Thursday or longer if the stocks see a 5 percent or more plunge in price.

“With a lack of alternatives, the surge in buying sentiment has been overly steep,” said Chung Sang-jin, head of stock management at Korea Investment Management Co. “Even though some companies may have shown positive earnings growth, the current rally has been excessive and could potentially result in significant volatility in a bombastic manner.”

Market insiders are paying attention to whether the buying rally among retail investors continues amid such high volatility in battery stocks. During this particular day, foreign and institutional investors were net sellers of 881.6 billion won in POSCO Holdings and 56.6 billion won in POSCO Future M, with the majority of the shares being acquired by retail investors. However, the trend was different for EcoProBM and EcoPro, as foreigners and institutions acted as net buyers, acquiring 280.6 billion won in EcoPro BM and 158.7 billion won in EcoPro.

“The sharp decline in battery stocks indicates a trend of normalization in the previously imbalanced supply and demand dynamics,” said Lee Kyung-min, an analyst at Daishin Securities Co. “Amid the recent rise in credit loan balances, the increased volatility in battery stocks, which were at the epicenter of the supply and demand imbalance raises the possibility of counter trading in the future.”