What's behind foreign investors' purchase of EcoPro shares?

A factory of EcoPro Materials, an affiliate of EcoPro that produces cathode materials, is seen in Pohang, North Gyeongsang Province, in this file photo. Yonhap

By Lee Min-hyung

Foreign investors are purchasing shares of EcoPro, driving the stock to its highest-ever closing price. Even analysts appear reluctant to share their outlook on the stock due to its unexpectedly strong rise. Foreign investors are purchasing shares pressured by the short squeeze and partly on hopes of its inclusion in the MSCI Korea Index in August.

The Kosdaq-listed blue chip stock is making headlines after attaining surprisingly sharp rallies day after day. EcoPro is a holding firm of three EcoPro affiliates ― EcoPro BM, EcoPro HN and EcoPro Materials ― all of which extended robust gains in their stock price in recent months.

The stock price of EcoPro continued a winning streak since June and has been one of the most attention-grabbing stocks in the secondary stock market here. EcoPro shares closed at 1.14 million won ($886) as of Friday up 5.54 percent from the previous trading day, its highest closing price on record.

This was buoyed mainly by foreign investors' solid buying sprees of the shares this month. According to data from the Korea Exchange, foreigners purchased 552.8 billion won of EcoPro shares between July 3 and 21. This far surpasses that of last month when foreigners bought 78.9 billion won worth.

EcoPro's possible inclusion in the MSCI index drove the foreign capital inflow, according to market experts.

“EcoPro is one of the four shares that are forecast to be included in the index next month, due to its strong stock momentum for the past three months,” Lee Jae-rim, an analyst at Shinhan Securities, said. “EcoPro and Hanwha Ocean are two of the candidates that will safely join the index in consideration of their market capitalization.”

Samsung Securities was also convinced that EcoPro will be able to place its name on the MSCI Korea Index.

Meanwhile, EcoPro's latest rally was also driven by a short squeeze ― which takes place when demand for a certain stock rises due to short sellers.

Data from the exchange operator showed that a short-selling balance of EcoPro reached 1.66 million in shares as of the end of June, but the figure fell by more than 30 percent to 1.11 million on July 18.

Most brokerage houses remain quiet on sharing an outlook for EcoPro shares due to the unexpectedly fast growth the stock in recent months.

EcoPro shares soared by more than 950 percent this year alone. In April, Hana Securities said EcoPro shares come with overvaluation risks due to the faster-than-expected growth. At that time, the securities firm set the firm's target stock price at around 450,000 won per share. But with its value more than doubling in only a few months, other brokerage houses are reluctant to share an outlook fearing a decline in credibility.