Short-selling of Korean shares reaches peak since early pandemic

The Korea Times

The Korea Times

Finance

Thu, November 30, 2023 | 01:22

Markets

Short-selling of Korean shares reaches peak since early pandemic

Posted : 2022-10-19 16:36

Updated : 2022-10-20 10:23

Traders work in Hana Bank's dealing room in Seoul, Thursday, when the benchmark KOSPI closed at 2,237.44, down 0.56 percent from the previous day. Yonhap

Korea Exchange introduces toughened short-selling rules

By Lee Min-hyung

More investors have capitalized on the short-selling of Korean shares at the fastest pace since the early phase of the COVID-19 pandemic in March 2020, in what is seen by many as a sign of a further stock fall going forward.

According to data from the Korea Exchange, the portion of short-selling on the KOSPI 200 index reached 10.54 percent on average during the four trading days last week. The figure had not topped 10 percent since the beginning of the pandemic.

Investors bet on the additional stock fall of the major listed firms here, as the U.S. Federal Reserve is gesturing that it will stick to its ultra-hawkish monetary policy possibly until the end of 2022. Fears of recession are also increasing the likelihood for local stocks to suffer further losses.

Samsung Electronics topped the list of the most shorted shares here. Last month, investors' short-selling of the firm's shares amounted to 557.5 billion won ($390 million). Other large-cap stocks were also major targets for short-selling during the same period. LG Energy Solution came in second with 534.4 billion won, which was followed by 358.5 billion from SK hynix.

Market analysts expected Korean stocks to remain in the doldrums due to the unfavorable macroeconomic conditions here and abroad.

"Any near-term rebound of the benchmark KOSPI is unlikely, as the U.S. Consumer Price Index in September increased more than expected, which raised the possibility of the Fed's further rate hikes," Eugene Investment & Securities analyst Kang Song-chul said.

This means the Fed will further delay its timeline to end the ongoing cycle of monetary tightening, so the Korean stock market is forecast to face continuous downward pressure until there are any gestures of the Fed slowing down the pace of its rate hikes during the upcoming Federal Open Market Committee (FOMC) meeting in November, according to the analyst.

On Wednesday, the KOSPI closed at 2,237.44, down 0.56 percent from the previous trading day.

The securities firm forecasted the main bourse to slip further to as low as the 1,950-point mark amid lingering concerns over short-selling.

As those concerns grow, the Korea Exchange decided Wednesday to toughen rules on the trading practice.

Any stocks, whose portion of short-selling tops 30 percent or short-selling transaction volume doubles, will be designated as "overheated" shares from Oct. 24, according to the decision by the exchange operator.

When a stock's price drops by more than 5 percent on a day when its short-selling is banned, the transaction will be suspended until the next trading day, it said.

Financial authorities left open the possibility of putting a temporary ban on short-selling if the market keeps widening volatility.

"The Financial Services Commission (FSC) cannot say for sure whether we will take any specific actions on short-selling for the time being," FSC Chairman Kim Joo-hyun said during a recent audit session at the National Assembly.

Financial Supervisory Service Governor Lee Bok-hyun, however, hinted at the likelihood of suspending the trading practice, saying that "financial watchdogs can take any market stabilization measures in times when market participants' unrest has reached its peak."

mhlee@koreatimes.co.kr