The domestic stock market is fluctuating due to significant issues such as tax reform plans and tariff negotiations with the United States. The KOSPI index was close to the 3,300 mark at the end of last month, raising expectations that it could surpass the all-time high of 3,305.21 points set on July 6, 2021, but on the 4th, the KOSPI index closed at the 3,140 level.
Now that the market has entered a consolidation phase, experts are focusing on the earnings and the short selling transactions that resumed in June. In today's market, looking at 'who is betting on declines' rather than 'who is buying' provides good hints for developing investment strategies.
The proportion of short selling surged immediately after its resumption in June but has recently shown a slight decrease. In July, there were 70 overbought short selling stocks, a 38% decrease from the previous month (113). However, there have been stocks that have particularly increased in short selling proportion during this period. These are relatively vulnerable to downward pressure on stock prices. Experts advised that it is necessary to analyze stocks where earnings improvements and expectations of stock price increases are excessively reflected for investment reference.
Generally, short selling transactions tend to concentrate in weaker sectors and stocks compared to strong fundamental industries. Shinhan Investment Corp. presented three criteria for sectors to be cautious about, considering the increase in related balance as a leading indicator of short selling, expectations for earnings, and upward trends in stock prices.
First, there are sectors where the balance of related transactions increased as earnings per share (EPS) were revised downward last month. Information technology (IT) hardware, telecommunications, automobiles, chemicals, and healthcare are among them. Another criterion includes sectors where the stock prices have sharply risen in the recent month, leading to an increase in related balance. This includes IT home appliances, steel, chemicals, healthcare, automobiles, energy, and securities. Lastly, there are sectors where the balance increased along with the outflow of foreign investment, including software, telecommunications, financial chemicals, media education, IT home appliances, non-ferrous metals, and essential consumer goods.
Shinhan Investment Corp. analyzed that many of the sectors meeting these three criteria are largely exposed to competition from China, including steel, chemicals, and IT home appliances. These sectors have seen stock prices rise due to an influx of positive expectations centered around the secondary battery and old economy industry as a result of structural adjustments following China's 'neijuan' (internal competition) boundary.
Stocks where short selling transactions concentrated due to policy expectations have also emerged. These include themes related to artificial intelligence (AI) or stablecoins, financial stocks due to capital market advancement policies, and domestic stocks such as telecommunications and essential consumer goods.
Kang Jin-hyuk, a researcher at Shinhan Investment Corp., noted, 'For these stocks, the 'story' influencing stock prices still holds power, but it may take time to prove this through performance, making them inevitably vulnerable to downward pressure.'
Stocks that saw a particularly large increase in the proportion of related balance last month should be approached with caution. In the KOSPI market, the top stocks are HANMI Semiconductor, L&F, SKC, and Hotel Shilla, while in the KOSDAQ, they include Ecopro, Enchem, KMW, and SIMMTECH.
Researcher Kang stated, 'Stocks with a high proportion of balance that have quickly increased throughout July indicate that their short selling has increased, signaling a need for caution in investment.' He mentioned that in the KOSPI, these include HANMI Semiconductor, SKC, Hotel Shilla, and LG Innotek, while in the KOSDAQ, they comprise KMW, SIMMTECH, and Cheryong Electric.
When the market is consolidating, it is necessary to pay attention to the invisible downward signals. If the stock price is rising while the fundamentals are weak, it may be time to check the related balance.