Short sellers caught off guard by KOSPI’s 5,000-point breakthrough

The KOSPI index is displayed at Hana Bank’s headquarters in central Seoul, Friday. The benchmark extended its gains and climbed to an intraday high of 5,021.13. Yonhap

Heo, an office worker in Seoul, watched his losses mount after short-selling Samsung Electronics stocks starting in the middle of last year on expectations of an earnings slowdown.

The 38-year-old built his short position at an average price of 142,000 won ($98), but as the stock climbed past the 150,000-won level, he was asked to post additional margins and ultimately closed the position earlier this month, locking in his losses.

“I expected a short-term correction, but I didn’t anticipate the index rising this quickly,” Heo said. “As the stock price rose, my losses grew, which was psychologically very stressful.”

Short selling involves borrowing shares and selling them first, then buying them back later at a lower price to return them to the lender. As the benchmark KOSPI has surged past the 5,000-point mark amid a historic rally, losses have widened for investors who bet on falling share prices.

According to the Korea Exchange Sunday, eight of the 10 KOSPI-listed stocks with the highest short selling ratios this year were trading above their average short selling prices as of last Thursday.

The average short selling price refers to the mean execution price of all short sale transactions for a given stock and serves as a benchmark for measuring short sellers’ performance. When a stock’s current price exceeds this level, short sellers are effectively sitting on losses, while prices below it indicate potential gains.

With KOSPI up about 800 points so far this year, a large number of short sellers are now widely seen as occupying loss-making positions.

The 10 stocks with the highest short selling volumes include Coway, Doosan Bobcat, Hansol Paper, LG Household & Health Care, HiteJinro, S-1 Corp., Cosmax, Hanssem, ESR Kendall Square REIT and Hana Tour.

Among them, only two have posted declines in their share prices, and even those losses have been modest. Coway closed at 77,400 won on Friday, about 1 percent below its average short selling price of 78,405 won, while Hana Tour was also trading below its average short selling level, at 45,100 won versus 45,992 won.

By contrast, Cosmax’s average short selling price stands at 179,502 won, but the stock closed at 193,800 won on Friday, suggesting that short sellers would have faced losses of about 8 percent had they covered their positions a day earlier.

Samsung Electronics has also been one of the key targets of short sellers, but the strategy has so far yielded little success. The stock has been short-sold at an average price of 141,190 won, while its Friday closing price was 152,100 won, leaving short sellers facing losses of about 7.72 percent.

Lee Kyung-min, an analyst at Daishin Securities, said the recent KOSPI surge does not reflect speculative excess but rather a solid upswing underpinned by earnings growth and supportive fund flows.

The analyst expects the benchmark index to maintain its upward momentum in the near term, meaning investors betting against the market could face further losses.

“The rally seen this year is grounded in fundamentals, with foreign and institutional investors leading the buying,” Lee said. “The forward price-to-earnings ratio remains at just around 10.5 times, making it difficult to characterize the market as overheated or bubble-like.”