Kospi posts record daily growth after short selling ban

Finance

Published: 06 Nov. 2023, 18:15 Updated: 06 Nov. 2023, 19:43

Kospi posts record daily growth after short selling ban

Electronic display boards show Monday markets at a Hana Bank branch in central Seoul on Monday. [NEWS1]

Korea’s stocks soared on Monday with the Kospi up 5.66 percent following the reinstatement of a full ban on short selling by the financial regulators.

Kospi, largely helped by tech and battery-related stocks, showed record daily growth with 134.03 points and the largest percentage growth since March 2020. Kosdaq closed up 7.34 percent.

The Korea Exchange briefly activated sidecar curbs on Kosdaq at 9:57 a.m. for five minutes, suspending program trading for the first time since June 2020.

The Kosdaq 150 Futures advanced 6.02 percent from the previous closing price when the sidecar was activated.

The sidecar curb, designed to ease the volatility in stock markets, is activated when the Kosdaq 150 futures rise or fall more than 6 percent or when the Kosdaq 150 index fluctuates more than 3 percent.

The stock surge followed the announcement by the financial authorities on Sunday to ban short selling on all stocks from Monday through to next June in a bid to level the playing field for retail investors and to improve the system after illegal short selling by global investment banks were discovered.

The Financial Supervisory Service (FSS) launched a probe into global investment banks to discover any illegal short sale they may have committed in the country to stop the illegal use of a trading tactic that is regularly used by global investors, like hedge funds.

Sunday’s ban was the fourth time the regulators fully prohibited short selling after the 2008 global financial crisis, the 2011 European debt crisis and the Covid-19 outbreak in 2020. The authorities had partially lifted the ban on large-cap stocks from Kospi 200 and Kosdaq 150 before the latest ban.

The ban may help appeal to retail investors, who have often complained about the impact of short selling on the market, though some speculate the ban to be a political move ahead of elections in April.

“Considering the time limit, it would not be strange to raise a speculation that the election was taken into consideration,” Rep. Kwon Chil-seung, a senior spokesperson of the Democratic Party, told reporters on Monday.

The FSS defended the move.

“It was an inevitable decision to protect retail investors considering comprehensive factors, like the environment that enables global investors to [practice illegal short selling] which could cause errors in forming appropriate prices,” said the FSS Gov. Lee Bok-hyun in a meeting with chiefs of accounting firms in western Seoul on Monday.

More than 100 stocks were confirmed to have been subjected to naked short selling, which is illegal in Korea, by global investment banks.

Lee added that the financial authorities will continuously strive to be added to the developed market status from global index provider Morgan Stanley Capital International (MSCI), despite concerns by some observers that say the short-selling bans make the market less transparent and therefore less attractive.

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