#One. In July of last year, Elon Musk, Tesla CEO, launched’Tesla Short Pants (short shorts)’ in its online shopping mall. Rather than a new business, it was designed to satirize the short-selling forces that undervalue Tesla for more than 10 years. Earlier, Musk presented shorts to David Einhorn hedge fund manager, a representative Tesla short seller, when the stock price soared 17% in November 2019 due to the disclosure of Tesla electric trucks and promotion of a factory in Germany. Einhorn is known to have suffered massive losses after making short-selling investments in Tesla. In July of last year, CEO Musk also laughed at the short-selling force, saying, “Who is wearing short pants?” According to S3 Partners, a financial information analysis company in the United States, investors who sold Tesla were reported to have lost $40.1 billion (about 44.3 trillion won) last year.
#2. During the financial crisis in October 2008, Volkswagen became the world’s number one automaker in market cap thanks to a short selling attack. Hedge funds short-sell about 12% of Volkswagen shares when the economic downturn became a reality due to the financial crisis at the time. Porsche, the largest shareholder of 35% at the time, announced that it would increase its stake to 42.6% to respond to short selling, and that it would increase its stake to 50% by the end of the year. The share price rose quadrupled in two days as hedge funds, which were embarrassed as the largest shareholder’s purchase of shares, went into short-covering short-selling with massive losses.
In politics, there has been a movement to extend the ban on short selling due to concerns about a decline in stock prices, but historically, there are many cases where short selling did not lead to fears of falling stock prices. In particular, short selling has a net function of calming the stock price bubble, and there are concerns that even if the market has returned to normal, forcibly blocking the system may undermine the autonomy of the market.
Tesla is a representative example of the defeat of the short selling force. According to Samsung Securities on the 22nd, the share of short selling Tesla shares in the US as of the end of last year was 1.14%. Considering that Tesla’s share of short selling in October 2012 reached 44% and the share price was only $5, it can be seen that the share of short selling decreased as Tesla’s corporate value increased.
As the market eventually follows fundamentals in the long term, short selling orders or bans or resumes may cause temporary volatility, but do not create a trending downtrend. In fact, in Europe, which temporarily banned short selling last year and then resumed, the stock price on the day and after the resumption drew a relatively stable upward trend in accordance with the global stock market trend. This means that the Korean stock market is also unlikely to collapse due to the resumption of short selling.
According to exchanges in each country on the 22nd, France (CAC40 index) rose 5.15% on May 18, last year’s short selling resumption date, and Italy (FTSE MIB index) also rose by 3.25%.
The countries that banned short-selling transactions last year and resumed are Austria, Belgium, France, Italy, Spain, Taiwan, and Malaysia. Among them, countries other than Malaysia, which resumed short selling in January this year, posted a bull market.
Even in Korea, there has not been a collapse in the process of lifting after the last two bans on short selling. According to the Korea Exchange, short selling was banned twice in 2008 and 2011 (including non-financial stocks). From October 1, 2008 to May 31 of the following year, it was a response to excessive volatility caused by the US financial crisis. From August 10, 2011 to November 9, 2011, short selling was prohibited due to the European fiscal crisis.
On June 1, 2009, when short selling resumed, the KOSPI rose 1.37%, but a month later, the stock price fell by 0.24%. However, after three months of reopening, the KOSPI, which was lifted from 1396, jumped to 14.69% and surpassed 1700. On the resumption of short selling on November 10, 2011, the stock price fell 4.94%, but the following year reversal and the stock price went down from 1908 to 1,800, and immediately broke through 2000, showing that it is healthy.
Ahn Hee-joon, president of the Korea Securities Association (Professor Sungkyunkwan University) said, “There are few places that currently regulate short selling in developed markets, and most of them allow short selling and are releasing the regulation.” Bubbles can form,” he explained.
[진영태 기자 / 김정범 기자]
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