Short selling transactions will be fully resumed on the 31st. For the KOSPI 200 index and KOSDAQ 150 index stocks, this marks the first time in 17 months, and for all stocks, it has been about 5 years.
Securities firms noted that stocks with rapidly increasing margin balances and high valuations could become major targets for short selling after the resumption.
According to Samsung, KB, Kiwoom, Hyundai Motor, Daol Investment, and IBK Securities on the 29th, stocks with increased margin balances are likely to become targets for short selling. Short selling involves borrowing shares from others to place sell orders, aiming for capital gains when stock prices are expected to drop. As it is necessary to secure borrowing amounts before short selling, it is often the case that margin balances increase first.
In addition, caution should be exercised regarding stocks without individual stock futures. Foreign and institutional investors have been substituting short selling with building 'short positions' by selling individual stock futures while short selling transactions were prohibited. Stocks without individual stock futures imply that there have been gaps in short positions, meaning that short selling transactions could increase more sharply.
Moreover, if the price-to-book ratio (PBR, market capitalization ÷ net worth) is overvalued and industry conditions are unlikely to improve in the short term, leading to downward revisions in earnings per share (EPS) forecasts, short selling transactions could also increase.
A representative stock that meets these criteria is Ecopro. Ecopro has seen its margin balance ratio rise over 4 percentage points to over 11% this month while lacking individual stock futures.
Stocks like ECOPRO BM, POSCO FUTURE M, and L&F, which have individual stock futures but high margin balance ratios, were also named as stocks that could see increased volatility after the resumption of short selling. All are in the secondary battery sector, reflected by the downward adjustment in earnings forecasts this year due to sluggish industry conditions.
Many securities firms have pointed to ISU PETASYS as a stock to watch. ISU PETASYS has seen its margin balance ratio increase from the 3% range to over 8% this month, and it lacks individual stock futures.
In addition, several securities firms have mentioned HLB and HANMI Semiconductor as stocks to watch for short selling. HLB has no individual stock futures and a margin balance ratio of about 8%, while HANMI Semiconductor does have individual stock futures, but its margin balance ratio has increased nearly 5 percentage points over the past month.
Although the full resumption of short selling may be a burden for some stocks or sectors, many opinions suggest that its impact on the overall market will be limited. This is because the domestic stock market has been undervalued after last year's downturn. In the three instances when short selling was previously banned, including the weak stock market in 2009 and 2011, the KOSPI index showed an upward trend after the resumption of short selling.
There are also forecasts that short selling could serve as a driving force for the stock market's rise. Jeon Joon-ho, a researcher at IBK Securities, said, "The impact of short sellers on declining stock prices will be less than the impact of long investors on rising stock prices," adding that "With the resumption of short selling, foreign participation in the market may increase, improving supply and demand conditions."
Considering that the stock price volatility of individual stocks may increase after the resumption of short selling, financial authorities decided to expand the short selling excessive stock designation system for two months until May 31. Stocks with a significant increase in short selling compared to normal will be designated as excessive short selling stocks and may see restrictions placed on short selling the following day.