Short selling allowed from Monday on some shares

A Korea Stockholders Alliance bus protests short selling in central Seoul on Feb. 2. [NEWS1]

Short selling restrictions in Korea will be partially lifted Monday – more than a year after the financial regulator imposed a prohibition on the practice when stock prices collapsed as the pandemic started.

The restriction is being lifted on Kospi 200 companies and on 150 companies listed on the Kosdaq.

A total of 917 stocks are Kospi companies, and 1,470 stocks are listed on the Kosdaq. The Financial Services Commission said restrictions on the other stocks will remain in place.

Short selling is when an investor borrows stock and sells that stock immediately on the hope of buying it back at a lower price, repaying the loan and profiting from the difference.

Retail investors object to the practice as they believe that they are at a disadvantage in a market that requires considerable capital and access to shares available for borrowing. Many also believe that short selling drives down stock prices.

The Kospi jumped more than 80 percent from 1,714.86 points on March 16, 2020, when the ban was imposed, to 3,147.86 points as of April 30.

Kosdaq jumped more than 90 percent during the same period from 504.51 to 983.45.

Brokers say that the resumption will not be a problem.

“Resumption of short selling could pull foreign investors back into the domestic stock market,” read a report from KTB Investment & Securities on April 30. The report further said that the supply and demand for blue chip stocks on Kospi will grow.

“Aftereffects of short selling in the past was concentrated on mid to small stocks listed on the Kosdaq, not major Kospi stocks,” read a report from Samsung Securities published on April 28.

Financial firms have said that some shares with high price-earning ratios or a significant float of convertible bonds could get hit.

KB Securities mentioned SK Innovation, HMM and Medytox as some examples, while Hanwha Investment & Securities suggested LG Display and Kiwoom Securities.

BY JIN MIN-JI [jin.minji@joongang.co.kr]