Korean "Ants"
- Nick Bird
- 12 hours ago
- 2 min read
The term “ants” is a nickname used in South Korea’s financial world to describe retail investors - that is, ordinary individual investors who trade stocks directly, rather than through institutions like mutual funds, hedge funds, or pension funds. The term became widely used during the 2020 COVID-19 market crash and rebound, when millions of individual investors in South Korea started buying stocks aggressively, believing they could outsmart foreign and institutional investors.
Many of the “ants” see foreign hedge funds as predators - powerful outsiders who profit from Korea’s markets at locals’ expense. Here’s a bus advertisement railing against hedge funds shorting stocks and calling for the practice to be banned.
My concern is the “ants” tend to pile into stocks regardless of fundamentals or valuations.
Consider Daewoo Engineering & Construction (047040 KS). The company is engaged in large-scale projects across civil infrastructure, architecture, housing, industrial plants, and energy facilities.
It’s a decent company whose share price has been supported by investor interest in the nuclear energy theme. The issue is whether investors have been overenthusiastic.
The company’s share price has increased by more than 900% over the last 6 months. It now trades on a one year forward earnings multiple of less than 2.5% and is not forecast to pay any dividends. Its book yield is around 20%, which is very low compared to other construction and engineering companies.
The high level of stock turnover relative to market capitalisation also stands out. The market cap on April 30 was $US9.7 billion while the median daily turnover over the last month was around $US0.6 billion. This is characteristic of stocks favoured by retail investors in Korea.
Daewoo Engineering & Construction also features prominently on Korean stock forums. The image below was taken from one of the most well-known forums.
I'm not sure what it says, but the number of exclamation marks and up arrows suggests an upbeat investment thesis.
The popularity of the stock among retail investors - combined with the stock’s extreme price outperformance and stretched valuation - suggests that the share price may have become detached from fundamentals. This is the reason why we’re maintaining a short position in the stock even though it has materially detracted from the fund’s performance in recent months.
Daewoo Engineering & Construction is one of several Korean stocks that have surged sharply over the past few months, driven by strong retail investor interest. Price moves of this magnitude, which are difficult to justify based on fundamentals, have made it extremely challenging to manage our Korean short portfolio.
Finally, it would be encouraging if retail investors - the so‑called “ants” - had a deeper appreciation of the challenges involved in shorting stocks and the important role short sellers play in maintaining orderly price discovery. Short sellers are not malevolent actors and should not be blamed for the trading losses of retail investors.