Do not go gentle into that good night, old age should burn and rave at close of day; Rage, rage against the dying of the light, though wise men at their end know dark is right, because their words had forked no lightning they, do not go gentle into that good night.
KOSPI struggles with soaring short selling
Deputy Prime Minister Hong Nam-ki speaks during the emergency macro-economy conference at the Korea Federation of Banks headquarters in Seoul, Aug. 7. / Courtesy of the Ministry of Economy and Finance
By Jhoo Dong-chan
By Jhoo Dong-chan
A growing number of investors are rushing to short Seoul stocks, imposing a double whammy for Korea's stock market that was already hit hard by global uncertainties raised by the renewed U.S.-China trade row. Most of them are foreign and institutional investors.
Short selling refers to the sale of borrowed shares in the hopes of making a profit from the price fall by buying the shares back at a lower price.
Retail investors would find it almost impossible to short Seoul stocks due to a lack of funds. They were also not allowed to use the stock lending system serviced by the Korea Securities Depository.
According to the Korea Exchange (KRX), Sunday, share prices of eight out of 10 KOSPI-listed stocks, which investors shorted the most for the first week in August, slid in the period.
The share price of cosmetics giant Amore Group dropped 5.56 percent between Aug. 1 and 8. Of investors' entire transaction trading the firm's shares, 40.53 percent were short selling.
Share price of Hanmi Pharmaceutical also slid 12.03 percent in the period. Of investors' entire transactions, 32.96 percent were also short selling.
The study suggested investors shorted a total of 2.7 trillion won ($2.22 billion) for the first week in August.
Of the entire transaction, foreign investors shorted 1.66 trillion won, accounting for 61.44 percent. Institutional investors shorted 1.02 trillion won to occupy 37.86 percent.
In the meantime, retail investors accounted for only 0.7 percent since they shorted only 19 billion won during the period.
Citing the high hurdles to entering the nation's short selling market, a growing number of retail investors have claimed the government should regulate short selling to a certain degree.
They even claim on the Cheong Wa Dae webpage that the government should temporarily suspend short selling because their shorting added fuel to the fire when the benchmark KOSPI crashed to near the 1,900 level last week.
Deputy Prime Minister Hong Nam-ki said during a recent media conference that the government is reviewing its plan to temporarily suspend shorting in the nation's stock market.
“Short selling has its own function contributing to the market, but we are reviewing our options to temporarily limit shorting here in case of emergency,” Hong said.
Market analysts, however, oppose the government's move temporarily suspending short selling.”
“I believe it was just rhetoric,” said a major securities firm research center head who asked not to be named.
“It is true the nation's stock market surprisingly crashed over a series of unfavorable external factors including the U.S.-China trade row, so the government needs to deliver messages to settle the market. However, short selling has its own function to prevent volatility. I don't think the government would ever take such a drastic measure unless the country faced an IMF-equivalent financial crisis.”