Short-selling proved to be a winning strategy in Korea’s first-half bear market as eight out of the 10 most shorted Kospi stocks fell sharply, generating big cash for the wagerers and fueling demand for trade betting on a falling market despite toughening in regulations.

According to the Korea Exchange on Thursday, eight out of the 10 most shorted stocks on Korea’s main bourse saw an average fall of 14.1 percent in their share prices as of July 16 compared to the end of 2017, more than double the Kospi loss of 6.7 percent during the same period.

Short sellers profit on the expectation that a particular stock will decline. They borrow the shares, sell them and buy them back at a lower price, profiting from the difference.

The heaviest target was leading furniture maker Hanssem, with short trade making up 349.6 billion won ($309 million), or 31 percent, of its turnover of 1.1 trillion won.

Investors also drew huge bets against convenience store stocks. Short sales made up 18.2 percent of the trade turnover for GS Retail and 17.9 percent for BGF Retail as the bottom line of convenience stores has been expected to take a hit from the higher minimum wage. Under the pro-labor Moon Jae-in government, the hourly minimum wage was raised by 16.4 percent this year and is expected to be bumped up by another 10.9 percent next year to 8,350 won.

Hyundai Wia, the auto parts unit under Hyundai Motor Group, came next with short sales taking up 17 percent, followed by the security solutions company S-1 and Doosan Heavy Industries & Construction each at 16.2 percent. Game company Netmarble drew a short sale share of 15.9 percent, trading company SK Networks 15.4 percent, electronic goods retailer Lotte Hi-Mart 15.1 percent, and apparel brand Handsome 15 percent.

Out of the 10 biggest loser bets, eight actually lost ground. Hanssem stock plunged 40 percent, GS Retail 15.1 percent, and BGF Retail 21.2 percent against the end of December.

The wins suggest the short selling fad may not die down despite toughened measures.

Korean financial regulators are seeking to toughen punishment for short-selling irregularities by extending the prison term to up to 10 years. Authorities began to question the short-sale practice following Samsung Securities’ fat finger fiasco in April, in which an employee accidentally issued 1,000 shares instead of 1,000 won to staff as dividend payment. The blunder sparked public outrage when it was revealed that some employees had quickly sold off the ghost shares. The company has reportedly fired about 20 employees involved in the scandal and filed criminal charges on eight of them.

By Jin Young-tae and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]