As the domestic stock market rises sharply, short selling investments have surged. The net short selling balance increased more than threefold in four months, and the margin balance, referred to as short selling waiting funds, neared 100 trillion won.
According to the Korea Exchange on the 12th, as of the 6th, the net short selling balance in the KOSPI market was a total of 10 trillion 76 billion won. This is up more than 6 trillion won from the 3 trillion 8982 billion won recorded when short selling transactions resumed on March 31. During the same period, the net short selling balance in the KOSDAQ market increased from 1 trillion 7923 billion won to 4 trillion 635 billion won.
The combined net short selling balance of the KOSPI and KOSDAQ markets surpassed 14 trillion won, approaching the level of 17 trillion won just before the complete suspension of short selling transactions in November 2023. The amount of margin balance available for short selling also reached 96 trillion 6200 billion won as of the 8th, already exceeding the November 2023 level of 82 trillion won.
Short selling refers to selling borrowed stocks and then buying them back to return. An increased short selling balance indicates that more investors are considering the possibility of a decline. With the domestic stock market soaring in a short period, short selling investments have also become active.
In the KOSPI market, the stock with the largest net short selling balance relative to market capitalization is HANMI Semiconductor. The ratio of the short selling balance increased about tenfold from 0.65% at the end of March to 6.1% on the 6th.
HANMI Semiconductor has dominated the TC bonder market, which is used in making high-bandwidth memory (HBM) chips essential for artificial intelligence (AI), but the emergence of a competitor, Hanwha Semitech, has led to increased short selling investments.
Following HANMI Semiconductor, the stocks with significant net short selling balance ratios are ▲SKC 5.31% ▲Hotel Shilla 4.53% ▲Shinsung ENG 4.15% ▲LG H&H 3.41%.
In particular, LG H&H has an overwhelming first place with a cumulative 18.55% ratio of short selling transaction value to total transaction value since the end of March. Despite the K-beauty craze, it has struggled to expand its presence in overseas markets, making it a primary target for short selling investments. An institutional sector source at a securities firm noted, "It appears that short selling of LG H&H is common as part of hedging while increasing investments in cosmetics stocks."
Looking at the net short selling balance ratios of KOSDAQ market stocks, as of the 6th, Cheryong Electric was the largest at 5.45%, followed by ▲Danal 5.03% ▲VT 4.81% ▲Ecopro 4.81% ▲Jeju Semiconductor 4.73%.
A high net short selling balance ratio indicates that many investors expect stock prices to fall. However, if stock prices soar unexpectedly, it can sometimes lead to a short squeeze, where investors who short sell buy back stocks to cover their positions, resulting in further price increases. A short squeeze occurs when investors, who anticipated stock price declines and engaged in short selling, must purchase stocks to cover losses as prices rise contrary to their expectations.
Hotel Shilla is a notable example. After the government announced on the 6th that it would temporarily allow visa-free entry for Chinese group tourists, more than 200,000 shares were recalled for settlement within four trading days. During the same period, the average short selling price rose from 45,937 won to 50,648 won.
Currently, it is difficult to predict market overheating based solely on the scale of short selling, but if upward momentum cannot be maintained, drastic fluctuations in individual stocks are expected.
Lee Sang-hyun, a researcher at MERITZ Securities, said, "While the current short selling balance ratio has increased by 89% compared to before the resumption of short selling, it is not high when compared to earlier levels. However, if the market's upward momentum slows down and the short selling ratio relative to transaction value continues to expand, the volatility of individual stocks may increase significantly."