Before the by-election of Seoul and Busan mayors in April
Will the resumption point be delayed in the end of the burdensome party regime?
“A short sale should also be postponed”
Criticism of short selling and populism
Photo = Hankyung DB.
Investors are paying attention to short selling, which is scheduled to resume in March. There are concerns among experts and individual investors that the stock market that broke through the 3100 line will be shaken by the resumption of short selling. However, there are also observations that it is unlikely that the party and the government will resume short selling in the face of a backlash from public opinion ahead of the by-election of the Mayor of Seoul and Busan in April. The demands of the ruling party lawmakers to postpone the resumption of short selling also support this.
The KOSPI index on the 11th is trading at 3169.16, up 16.98 points as of 12:18 pm. The KOSPI has crossed the 3000 line this year and broke the 3100 line. It is thanks to the’real ammunition offensive’ of individual investors who net bought 1,745.8 billion won by the 8th of this year. On that day, it is currently buying a net worth of 2.90 trillion won.
Controversy is rising over the stock market peak. Experts agree that the resumption of short selling in March will be the’trigger’ of the correction. Short selling is an investment method that borrows and sells stocks and then buys them back and repays them when the stock price falls. As stock prices fall, profits increase. The Financial Services Commission banned short selling of stocks listed on the domestic stock market including KOSPI, KOSDAQ, and KONEX for six months from March 16 last year. On September 15 of the same year, the restriction on short selling was extended for six months. Short selling is expected to resume from March 16th accordingly.
Individuals have been strongly opposed to short selling. This is because the stock price often falls further due to worsening investment sentiment when the number of short selling in the stocks that they own increases. Individuals can also sell short through a securities company’Large Share Transactions (transactions made by individuals with institutions or individuals). However, the ratio of individual investors is very small due to the strict investment requirements and high risk. Short selling does not have a small net function, such as preventing stock price bubbles, but that is why individuals object.
Analysis is spreading among some stock communities and’similar investment advisors’ that short selling will be extended once more. “Will the government and the ruling party make a decision to worsen public opinion ahead of the by-elections?”
Some of the ruling party’s lawmakers also support this argument. The Democratic Party’s Supreme Council member Yang Hyang-ja argued that “we must seriously consider the extension of the ban on short selling that is scheduled to be lifted in March.” He said, “For the past year, the ruling party of the government has come up with an institutional mechanism to minimize the dysfunction of short selling, but if there is insufficient explanation for this, it will not be possible to calm market anxiety.” Previously, Democratic Party lawmaker Park Yong-jin also requested to the Financial Services Commission to reconsider the resumption of short selling, saying, “If short selling resumes, there is a risk of serious torts and foul acts.” There are criticisms of this as’populism even in short selling’.
As the ruling party has recently played a role as a “control tower” in major economic policies, there is no possibility that their request will be fulfilled. The Ministry of Strategy and Finance insisted that the scope of major shareholders subject to stock capital gains tax should be expanded to ‘300 million won or more’ last year, but in the end, as the ruling party argued, the majority shareholder range was maintained at ‘1 billion won or more’. There is an analysis that a similar pattern will be repeated this time.
Reporter Kim Ik-hwan [email protected]
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