Short-selling is back in Korea, hits Kosdaq harder on the first day

2021.05.03 11:11:02 | 2021.05.03 15:40:20

[Photo by Yonhap]이미지 확대

[Photo by Yonhap]

Short-selling has become permissible for large-cap South Korean stocks from Monday after a 14-month ban, causing greater upset to the secondary stock market.

The Kospi 200 closed the day a tad 0.47 percent lower at 420.36 and Kosdaq 150 down 3.12 percent at 1,361.61. The broader Kospi ended 0.66 percent down at 3,127.20 and Kosdaq 2.2 percent off at 961.81.

Short-selling is restricted to the 200 top stocks on the Kospi and 150 on the Kosdaq.

As expected, Kospi No. 10 Celltrion lost 6.2 percent and its biosimiliar distributor Celltrion Healthcare, No. 1 on Kosdaq, fell 5.97 percent as they had been regular targets for short sale.

Stocks with a sharp increase in the balance in margin account also could make the candidates for short selling.

The balance in margin account – or shares borrowed from brokerages that are essential for shorting, a strategy betting on a stock price fall through borrowed shares, stood at 56.3 trillion won ($50.4 billion) last month, compared with 46.6 trillion won in December last year.

CJ CGV, LG Innotek, GS Engineering & Construction, Boryung Pharmaceutical, and DL were most borrowed on the main Kospi while HLB, Dawonsys, NK Max, Seegene, and HLB LifeScience on secondary Kosdaq.

Yoo Myung-gan, a researcher from Mirae Asset Daewoo, warned that individuals should pay attention to stocks in increased borrowed ratio.

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Stocks with high issuance of convertible bonds (CB) and bonds with warrants (BW) could also become short selling targets as shorting is widely used among CB or BW investors to hedge from stock price fluctuation. CBs are corporate debt security that can be converted into equity, and investors could gain profit from a short sale if the convertible price is higher than the current share price.

Another change from May is more opportunities for retailers for the practice that previously had been dominated by institutions with expertise in the hedging strategy.

According to Korea Financial Investment Association, more than 13,000 retail investors completed short sale training as of Friday. About 5,000 investors have also tried mock dealing. Retailers must go through a program to become eligible to the investment.

Han Ji-young, a researcher at Kiwoom Securities, said that the resumption of short sale could lead to increased volatility in the overall stock market briefly but did not see major impact, given the market’s upward momentum.

Lee Jung-bin, a researcher at IBK Investment & Securities, also agreed stock price hit from short selling will be limited, but cited stocks with high price-to-earnings ratio, growth stocks, and bio shares could be subject to profit-taking through short sale.

Some analysts also noted that the resumption of short sale could bring in more foreigners into the market with inflow of global funds like active funds and hedge funds.

By Kim Gi-chul and Lee Eun-joo

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