Shorting is back and some shares suffer

Finance

Published: 03 May. 2021, 18:36

Shorting is back and some shares suffer

Korea Exchange staff monitor short selling Monday at a monitoring center in Yeouido, western Seoul. Short selling, which was banned since March last year, partially resumed for some Kospi and Kosdaq stocks Monday. [KOREA EXCHANGE]

Korea's stock market tumbled Monday as a ban on short selling was partially lifted after nearly 14 months.

Seoul's main bourse Kospi fell 0.66 percent to 3,127.2 on Monday while the tech-heavy Kosdaq index dropped 2.2 percent to close at 961.81.

The weakening was largely due to a slide in shares of companies that have been major targets of short sellers.

Multiple brokerages predicted before the lifting of the ban on short selling of Kospi 200 and Kosdaq 150 shares that overvalued stock and stock with a history of being heavily shorted would be affected.

Short selling is when an investor borrows stock and sells that stock immediately in hopes of buying it back later at a lower price, repaying the loan and profiting from the difference. It has been prohibited since March 2020 as stock prices plunged in Korea amid the coronavirus pandemic.

Biopharmaceutical shares, which rose rapidly over the past year during the pandemic, were most affected by the resumption of short selling. They also were affected by high number of daily Covid cases and a slow rollout of vaccines.

Among Kospi-listed biopharma stocks, Celltrion lost 6.2 percent to hit 249,500 won ($222), Shin Poong Pharm plunged by 12.18 percent to 61,300 won and Boryung Pharmaceutical slumped 12.55 percent to 23,350 won on Monday.

Celltrion has been a major target of short selling. As of April 28, the latest data provided by the Korea Exchange, Celltrion had 1 trillion won worth of shares in short positions, the largest among all Kospi stocks. On Monday, 71 billion won worth of Celltrion shares were sold short within regular trading hours, data from the market operator showed. While short selling was temporarily prohibited, some bets were in place before the ban. Market makers were also allowed to sell short.

Other Kospi shares affected include Hanjin Group's holding company Hanjin Kal, which declined 8.83 percent, and construction machinery maker Doosan Infracore, which fell 5.09 percent. Both were among the top 10 shorted stocks on the Kospi bourse as of April 28 in terms of the amount of shares.

Fuel cell supplier Doosan Fuel Cell was down 10.98 percent to 40,150 won on Monday. The stock was shorted largely due to weaker-than-expected first quarter earnings.

Doosan Fuel Cell shares have been on the rise due to the Korean government's focus on hydrogen fuel cells. Its shares rose from the 7,000 won per share level last May to as high as over 65,000 won in February.

The company reported a net loss of 4.26 billion won in the first quarter of this year, which was 24 percent higher than the 3.43 billion won net loss posted in the same quarter last year.

Biopharmaceutical companies on the Kosdaq also weakened.

HLB lost 4.23 percent to reach 31,700 won while Helixmith dropped 10.59 percent to 27,850 won. Seegene, a biotech company that hit it big with a Covid-19 test kit last year, shrank 8.01 percent to 86,100 won.

Analysts say the impact of the return of short selling on the market is likely to be limited.

"Volatility in the stock market could be expanded this week due to [partial] resumption of short selling, but its impact on the overall movement of major stock indices will be limited," said Kim Yoo-mi, an analyst from Kiwoom Securities.

"Also, when the stock market is on a bullish trend, it is harder for short selling to influence the market. That investment strategy doesn't really play well in a bullish market."

"A risk factor that we all saw coming is not really a risk factor," said analyst Shin Seung-jin of Samsung Securities. "Much of the concerns related to short selling was already reflected in the April stock market."

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]