With a war of words escalating between North Korea and the United States, it behooves investors to study the industries that short sellers like most in South Korea: pharmaceuticals and biotech, capital goods, autos, technology and software/services.
Short sellers borrow shares on the hunch they can sell them back at a lower price and profit from the difference, after associated costs. S3 Partners’ Ihor Dusaniwsky, a research analyst who tracks roughly $10 billion in short and swap positions on South Korean equities. He notes:
” …The possibility of a non-diplomatic based event, outright war or intercontinental ballistic missile launches resulting from North Korean tensions is finally being reflected in the South Korean market. The KOSPI index was up 20.98% as it hit its year-to-date high on July 24th, and has dropped 3.39% since then. The Korean Won had strengthened by 7.27% by July 24th and has weakened by 0.97% since then …”
He provides this list of the most-shorted South Korean plays, including a popular U.S. exchange-traded fund. Each is followed by the borrowing fee and the short interest:
- Celltrion (068270.SouthKorea) (4.25%, $1 billion)
- LG Display (034220.SouthKorea) (0.5%, $460 million)
- Samsung Electronics (005930.SouthKorea) (0.5%, $373m)
- NCSoft (036570.SouthKorea)(0.5%, $368m)
- iShares MSCI South Korea exchange-traded fund (EWY) (0.78%, $362m)
- Hyundai Motor (005380.SouthKorea) (0.5%, $306m)
- Hanmi Pharmaceutical (128940.SouthKorea) (4.0%, $248m)
- AmorePacific (090430.SouthKorea) (0.5%, $244m)
- Samsung Biologics (207940.SouthKorea) (3.75%, $193m)
- OCI (010060.SouthKorea) (8.75%, $185m)
The South Korea ETF is down 1.9% today, while the iShares MSCI Emerging Markets ETF (EEM) and the iShares MSCI Emerging Markets Asia ETF (EEMA) are each down 1%. Among the aforementioned stocks, the worst performers overnight included LG display, down 2.4%; Hanmi Pharma, down 1.7%; and Samsung Biologics, down nearly 2%.
See our free post What’s Next For VIX: Trump ‘Improvised’ N. Korea Comment?