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Fears surrounding short selling escalate again

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An electronic board in Hana Bank's dealing room in Seoul shows a slight gain of the benchmark KOSPI, Tuesday morning. Yonhap
An electronic board in Hana Bank's dealing room in Seoul shows a slight gain of the benchmark KOSPI, Tuesday morning. Yonhap

KOSPI unlikely to regain momentum for rally

By Lee Min-hyung

The increased short selling of Korean stocks has emerged as a major fear factor in the local stock market, amid concerns that such moves will end up restricting any growth momentum in the benchmark KOSPI.

After the country's financial regulator partially lifted a ban on the short selling of listed shares in May, foreign and institutional investors have increased their transaction volumes for short selling here.

Retail investors cried foul even before the partial resumption of shorting, as it is high-risk trading strategy that bets on the possibility of a stock price fall and is primarily used by foreign and institutional investors.

According to data from the Korea Exchange, the daily transaction volume for shorting in the local stock markets between Sept. 1 and 13 reached 451.1 billion won ($385 million) on average, up 8.9 percent from the daily average in August. After the partial resumption of short selling, the daily figure went on to hit a record high on Sept. 10, when the short transaction volume came in at 673.6 billion won.

As the increased short selling sends a signal that the outlooks for the main bourse and secondary Kosdaq do not remain as promising as they once were, fears are escalating among investors that local stock markets may lose momentum for any additional rally from the mid- to short-term viewpoint after experiencing a big fall in March 2020 amid the global spread of the pandemic.

Investors in Kakao are particularly ramping up their criticism of the resumption of short selling, as the big tech firm was the most heavily shorted stock throughout last week. Kakao's stock price surged to as high as around the 170,000-won range back in June, but starting this month, it nosedived to reach 120,000 won as of Tuesday, hit hard by the increased shorting related to anxieties about imminent monitoring and regulation from the Fair Trade Commission, a local financial watchdog.

Sejong University Business Professor Kim Dae-jong said that the stock market would likely face a slight decline as the year end approaches, due to the U.S. Fed's planned tapering.

"If the Fed possibly starts slowing the pace of asset purchases in November, that will speed up capital outflow in the local stock markets," he said. "When the tapering begins, foreign investors will generally withdraw their capital from emerging economies, and this will result in a slight fall for Korean stocks."

The benchmark index hit the record 3,300-point mark in June, but has since failed to continue its upward momentum. The KOSPI has since entered an adjustment period, and it has been hovering between 3,100 and 3,200 points.


Lee Min-hyung mhlee@koreatimes.co.kr


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