This year’s KOSPI index flows in Korea’s securities market (on the 5th at 10:39am intraday)External criticism is coming out that the Korean government will put the Korean stock market at risk of falling, given that the Korean government has again extended the’prohibition of short selling’ ahead of the by-election of the Seoul and Busan markets next month. Apart from the `sloping playground` problem, the number of investors predicting a decline in the stock market is gradually increasing due to the policy populism (politics related to the popularity) with the election in mind, and the possibility of a plunge in market liquidity is unlikely.
On the 4th (local time), Bloomberg News pointed out in an article titled’The world’s longest-term banned short selling countries are putting their stock markets at risk of falling’. The longest-term ban on short selling in the world is Korea. In addition to Korea, Indonesia has been cited as a ban on long-term short selling for a year. However, the Indonesian government on the 5th said, “We will consider the market situation, but have decided to ban short selling until the end of this month.”
Regarding the decision to ban short selling for the longest time only in Korea, Nadar Naimi, chief market strategist of AMP Capital, a fund management company based in Sydney, Australia, said, “It is a surprising decision to extend the short selling ban given the strong Korean stock market.” Liquidity can be drastically reduced,” he pointed out.
South Korean governments such as the Financial Services Commission have extended the ban on short selling again, conscious of the aftermath of the recent game stop’short squeeze’ (squeeze short selling) in the New York Stock Market, but it is said that the side effects may be more serious. At present, due to the Corona 19 crisis from China, the government issued an economic stimulus plan and the central bank, the Bank of Korea, has instilled market liquidity, such as freezing the benchmark interest rate at 0.50% per year, but the ban on short selling again has some side effects that offset this. This is the point from the analysis that it raises the risk of falling the stock market.
Meanwhile, the chief investment officer of the Korean branch of Macquarie Securities at the FKI criticized the re-extending measure as “populism of Korean politicians.” He analyzed that “currently, short selling is banned in the Korean stock market and bearish bets are delayed, but this means that if short selling is resumed, all stocks in the Korean stock market could suffer a short-term shock.” Previously, large foreign investment banks (IBs) and hedge funds, such as JPMorgan, Morgan Stanley, and Goldman Sachs, have started intensive short selling because Korean Celltrion and HLB’s stock prices are overvalued compared to their fundamentals.
In the Seoul foreign exchange market on the 5th, the value of the won against the dollar dropped to 1123.2 won during the intraday, showing the lowest level in three months since November 6 (1126.9 won) last year. The value of the dollar rose as economic indicators and optimism that the US economy recovers faster than expected, while the value of the won is relatively weak due to the possibility of foreign capital outflows, such as the rising net selling of foreign stock markets the day before.
The coming 10th is the expiration date for index and individual stock options. Lee Kyung-min, head of the investment strategy team at Daishin Securities, said, “It is worth paying attention as the supply and demand of foreign futures and options will lead to volatility in the Korean stock market.”
On the other hand, regarding whether the resumption of short selling is negative for the stock market, Vince Roruso fund manager at Changebridge Capital in Boston, USA, said, “There is not much evidence that market liquidity increases or volatility decreases just because short selling is banned.” “If the ban on short selling is prolonged, important means and methods for forming a fair share price based on fundamentals will disappear from the market.”
In Korea, there were many voices from the politicians and public opinion that short selling should be corrected as it is a’sloping playground’. However, even the so-called’Donghak ants’ (a buzzword for domestic individual investors investing in Korean stocks) are criticizing that it is for the April election that it is for the April election to extend short selling by highlighting the loopholes in the system after being still there. Choi Min-jin (pseudonym, 32), an office worker living in Nam-gu, Busan, said, “I am Donghak ant, but I think this extension is for mayoral elections,” he said. “It has been pointed out that the short selling system in Korea is a slanted playground. If you see that the ban on short selling was extended for reasons of supplementation, etc., the Alternative Financial Services Commission and the government wanted to pay only the national tax for a year and what did they do.”
Samsung Securities’ credit loan service was temporarily suspended again on the 3rd, when the government announced a renewal of the ban on short selling.
The fact that the service, which resumed this week, was discontinued in just three days, suggests that there is a lot of demand from individual investors who are engaged in’debt investment’ (invest in debt). Meanwhile, an official from Kiwoom Securities said, “The way they manage credit loans differs for each securities company, but the atmosphere in which individual investors’ demand does not subside is a similar atmosphere.”
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