Korean bio stocks are the first to watch this month for a possible strong rebound fueled by short covering when investor worries over the coronavirus outbreak begin to fade away, some analysts advice, adding the current record-high short selling cannot persist for long.

The 20-day cumulative short-selling balance on the Kospi market surpassed 9.3 trillion won ($7.89 billion) as of Monday, breaking a previous record in 2019, as investors bet on a stock price decline in the wake of the coronavirus outbreak, according to Korea Exchange on Tuesday.

The short-selling balance ratio in Kosdaq 150 stocks continued to rise from 1.88 percent after Jan. 20 when the first confirmed infection case was reported and hit 1.95 percent on Jan. 30.

Short selling is a legitimate investment scheme to take advantage of the dip in share prices. Investors borrow and sell shares and then repurchase them at a lower price to make a profit on differences.

As expected, stock prices remained stagnant during January but the benchmark Kosdaq index turned robust in February. The index declined just one day during the past seven trading days in the month. The Kospi index is also stable, defending the 2,200 mark. When investor sentiment increases with the current situation maintained, short sellers will have no other option to resort to short covering to avoid further losses.

Shinhan Investment researcher Kim Sang-ho said life science (bio) stocks are those to watch as their increased short selling can be addressed along with improved investor sentiment after coronavirus concerns are eased. The short-selling balance ratio in Kosdaq 150 stocks rose 0.12 percent from the start of this year, but the corresponding figure in bio stocks jumped 0.31 percent. A stronger price rebound is projected in bio stocks with a better profit momentum among others, he added.

Data show short selling is concentrated on bio stocks on the Kosdaq market and economy-sensitive stocks in energy, shipbuilding, and retail business on the Kospi market. According to Meritz Securities and FnGuide on Tuesday, a high ratio of short selling against total transactions is seen in the sectors of shipbuilding (13.7 percent), energy (12.0 percent), banking (11.8 percent), retail (11.2 percent), and securities (10.8 percent) as of Monday. The low ratio is observed in semiconductor (5.2 percent), automotive (5.3 percent), and IT hardware (5.8 percent) stocks.

By Park In-hye, Ahn Gap-sung and Minu Kim

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