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Surge in stock trading accompanies increases in short selling
By Anna J. Park
With local stock markets showing signs of recovery recently, daily average short selling reached an all-time high level this month.
According to the Korea Exchange (KRX), the bourse operator, the average daily transactional amount of short selling from April 1 to 14 stood at 634.6 billion won ($485 million) for the benchmark KOSPI, while the tech-heavy Kosdaq's daily average short selling transactions we recorded at 362.7 billion won. Both daily average figures are at all-time highs ― since 2001 ― when related records began to be compiled.
The previous record for the highest daily short selling in the KOSPI market was set in May 2021, with 578.5 billion won. The Kosdaq's daily record-high was in March this year at 288.7 billion won.
April's daily average short selling for both the KOSPI and the Kosdaq each showed an increase of 70 percent and 334 percent, respectively, compared to the averages of January, this year.
Market watchers attribute the record high in short selling mainly to the increase in stock trading this month. The average daily stock trading amount stood at 27.3 trillion won, which is more than double January's 13.1 trillion won.
In addition to the increased trading volume, the KOSPI index rose by some 15 percent from early this year, while the Kosdaq index rose by 33 percent. The intensive upward movements of local stocks accompanied the increase of short selling transactions.
The recent spikes in the stock prices of EcoPro and EcoPro BM, secondary battery materials manufacturers, have particularly drawn massive short selling volumes. Daily short selling of each of the feverish stocks exceeds 100 billion won.
Retail investors have also been projecting a negative outlook or a correction period for overheated local stock markets, purchasing inverse equity exchange-traded funds (ETFs) to profit from a decline in local stocks. This month alone, retail investors purchased KODEX200 Futures Inverse 2X ETF worth 310.9 billion won and KDEX Kosdaq 150 Inverse ETF worth 236.1 billion won.
"It's natural that short selling increases with the surging stock trading volumes. Short selling also increases when the stock market indices are rising," Chung Myung-ji, chief of investment information at Samsung Securities said.
The stock expert added that local stock markets' recent better-than-expected performances sometimes trigger a short-squeeze, referring to a situation when sellers decide to shift their shorting positions by repurchasing the shorted shares at higher prices, in order to cut losses from unexpectedly increased stock markets.
"With local stock indices continuing to rise, some foreign and institutional investors opted to repurchase their previously shorted stocks to cut further losses," the analyst explained.
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| Financial Services Commission (FSC) Chairman Kim Joo-hyun, second from right, speaks during a meeting with startups in Seoul on April 10. Yonhap |
Meanwhile, local financial authorities are examining whether to lift a partial ban on short selling that's been in place for about three years. The ban, which began amid stock market crashes following the outbreak of COVID-19 in early 2020, was partially lifted in May 2021 for mostly large-cap companies, but short selling hasn't yet been fully resumed.
Financial Services Commission (FSC) Chairman Kim Joo-hyun, the country's top financial regulator, said that he didn't think about the complete resumption of short selling in January this year. Yet, he hinted late last month that he'd look into the matter again.
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