The Korean Stockholders’ Alliance is located in Yeouido, Seoul’s financial and political district, on the fifth floor of an officetel building mostly occupied by financial companies. Jung Eui-jung, the 62-year-old head of the Alliance and the sole resident of its office, points out the window to a large, bright-yellow bus parked outside on Eunhaengro (“bank street”), so named because it is home to South Korea’s two main state banks. The Alliance is an advocacy group that represents retail investors, with around 41,000 members. Its current mission statement is displayed in block letters on the side of the bus: “I hate short selling!”
Jung unveiled the bus at the end of January, not long after retail investors in the U.S. gathered on the Reddit forum r/WallStreetBets to drive up the share price of the video game retailer GameStop by 1,700% in a meme-fueled challenge to hedge funds who had shorted — in other words, bet against — the company’s stock. Helmed by a single driver, the Stockholders’ Alliance bus shuttles between Gwanghwamun, a public plaza often used for protests, and Yeouido, passing the stock exchange, financial regulators, and the National Assembly, in the hopes of igniting a similar movement in Korea.
Retail traders like Jung say that short selling is an exclusionary method of profiteering used by hedge funds to drive down stock prices and run roughshod over the little guys. That’s why the “David vs. Goliath” narrative surrounding GameStop has been so enthusiastically received by small investors in South Korea, who are known locally as “ants” — a nickname that captures their underdog identity.
“Not a lot of people really knew what short selling was,” said Jung, who founded the Alliance in 2019. “But the GameStop incident provided the spark of curiosity and awakened the public to the problem.”
As the story made local headlines, it stirred talk of a Korean copycat movement online. On Naver Cafe, the South Korean equivalent of Reddit, Jung later named the Alliance’s anti-short-selling campaign “kstreetbets.” The forum is where most of the group’s organizing — planning protests, petitioning regulators, and writing letters to lawmakers — is done.
As South Korea undergoes a retail trading boom during the pandemic that has sent the country’s benchmark KOSPI index to record highs, this sort of activism has turned ants into a symbol of “economic democratization” and an unlikely political force.
Pressure from retail traders like Jung pushed the government to extend a temporary ban on short selling, which was initially imposed in March of 2020. Now, with the current ban set to expire in May, Jung is campaigning for an additional year-long extension, if not an outright abolition of the practice.
South Koreans have historically tended to steer clear of stocks, preferring to invest in real estate. Recently, however, government curbs on property investments, stagnant wages, low interest rates, and high property prices have left people searching for a quicker buck. Jung estimated that the number of active ants has increased from 6 million to 10 million over the past year alone.
Much of that increase has been among millennials — known as the “2030 generation” — who are approaching stocks with a generational pessimism, embodied in terms like yeoung-ggeul (a Korean portmanteau that translates to “scraping together your soul to invest”) and bittu (taking out debt to invest). Shunning conventional long-term investment vehicles like index trackers or exchange-traded funds, they have preferred to buy and sell their stocks directly, seeking mid-to-high returns. For many, according to one poll, stocks represent a ticket to home ownership.
Technology has also lowered the barrier to entry since Jung began investing in stocks as a salaryman bank worker in the mid-1990s. The new wave of retail investors tends to gravitate toward easy-to-use brokerage apps with low commissions and to finding trading strategies and tips online. “Back in the day, you’d study by reading books about stocks, but now the overwhelming trend is watching YouTube videos, especially for the 2030 generation,” Jung said.
That has brought its own perils. YouTube can be a valuable resource for the wise, but a minefield of fraudulent advice for the gullible. In legally ambiguous KakaoTalk or Telegram group chats known as “leading rooms,” anonymous stock tipsters (“leaders”) sweet-talk credulous ants with promises of windfall profits before bilking them. Some leaders turn out to be running pump-and-dump schemes. Or “they’ll pull tricks like pretending to be offering a free service before directing you to a room with a subscription fee,” said Jung, who noted that he has reported some of the chat rooms to financial regulators.
Jung is also concerned by what financial experts have cautioned is the tendency of ants to go after risky, short-term bets. “South Korea might have one of the highest literacy rates in the world, but our level of financial literacy is very poor,” said Jung. “Ants do a lot of quick-hit trading — selling when prices rise a little but also when prices drop just slightly.” One popular rule of thumb for young ants has been “hitting five,” or cashing out whenever you reach a 5% return or make $45 (50,000 won) in profit. Many have also turned to margin trading, essentially borrowing money to buy stocks, which has recently become more popular than ever. With the Korean stock market notoriously volatile, investors can easily end up losing more than they put in.
But when the ants work together, they can move markets. Last March, foreign and institutional investors, worried about the impact of the coronavirus pandemic, sold off a combined $46 billion (50 trillion won) of the benchmark KOSPI, pushing the market down to a dismal 1,457.64 points. Ants countered, buying $43.58 billion (47.4 trillion won), propelling the KOSPI index over the 3,000 mark for the first time in history, in January of this year. The feat has been named the Donghak Ant Movement, a tongue-in-cheek reference to the Donghak Peasant Revolution, an 1894 uprising of farmers against corrupt government officials and economic destabilization at the hands of foreign powers.
“The stock market index has historically fallen before rebounding in times of crisis, and it seems like retail investors anticipated this scenario this time,” said Kim So-young, a finance professor at Seoul National University. “Once it became apparent that a lot of them were holding the line, more piled on, causing the surge.”
The ants’ ability to collectively flex their power has given them undeniable political leverage. In late 2020, the Alliance successfully rallied against a government proposal to expand capital gains taxes on stock investments for the top 5% of retail investors. Since December 2020, over 200,000 people have signed a presidential petition calling for the abolition of short selling, meeting the requirement for an official response from the government.
Proponents of short selling argue that it functions as a kind of safety valve for the stock market. By allowing investors to bet in both directions, the practice skims the fat off overvalued stocks and keeps the market efficient. But “the problem is that the Korean stock market system is designed to the advantage of certain players,” said Jung. “Short selling is emblematic of that.”
Short selling comprises only about 4% of total trades in South Korea, compared to around 40% in other major markets, but the point, according to Jung, is the inequality. “The dynamic is always one side disproportionately profiting, while retail investors are losing,” said Jung. “That’s what needs to change.”
Shorting a stock requires first borrowing the shares, which you then later buy back at a lower price to make a profit. Individual investors face high collateral rates and fees, limited selections of shares, and a repayment period capped at 60 days. Foreign investors and institutions, on the other hand, have no fixed repayment deadline — although lenders can technically recall their shares at any time. Moreover, capital gains from short selling are untaxed. Consequently, just 1% of short sellers in South Korea are small investors.
Retail investors, particularly those trading on margins, are also uniquely vulnerable to market volatility, which short selling can amplify — particularly in small stocks that are already sensitive to large movements. “There is definitely an aspect of short selling that stokes volatility,” said Kim So-young, the finance professor. “For stock that might not fall as dramatically if it weren’t being shorted, a short sell can exacerbate the decline.”
This has heightened the sense among ants that big institutional and foreign investors can use short selling to siphon money from retail traders. A recently published study by researchers at Hanyang University found that short sellers in Korea averaged about $2 million in daily profits from 2016 to 2019, while investors who traded on margin lost an average of $900,000 per day. “The rule here is that the money flows out from the wallets of individual investors to short sellers,” Jung said. “It’s a staggering gap.”
Although short selling alone is unlikely to cause the index to plummet, some analysts worry that the market is approaching a bubble and that overleveraged new ants could soon find themselves in trouble.
Jung said that authorities should use this moment to put in place protections and education for retail investors so that they can better handle volatility. He is also studying the fallout from the r/WallStreetBets incident. Many retail investors lost out as GameStop shares slumped again after the rush was over.
In late January, Jung said the Alliance would initiate a GameStop-style buying spree of two of South Korea’s most-shorted companies, but he has since adopted a more sober stance. “We’re watching the situation in the United States and thinking how to incorporate it into our own movement,” he said. “It won’t be the same. There could be negative effects, so right now, we’re just watching.”