In the six months since short-selling transactions fully resumed, more stocks in the domestic stock market rose than fell. Even when narrowed to stocks concentrated in short-selling transactions, more saw their prices rise.
Some investors were concerned about the burden on the stock market from short-selling transactions, but the resumption of short selling was not a factor that broke the bullish mood. Short selling is an investment technique in which an investor, expecting a stock price to fall, borrows shares to sell first and later buys the shares to repay.
According to the Korea Exchange on 1st, from Mar. 31, when short-selling transactions fully resumed, to Sept. 29, stock prices rose for 1,769 (64%) of 2,762 stocks (excluding SPACs) with comparable prices. Although the market wobbled right after the resumption of short selling, the upward trend continued in the second half.
What stands out is that even among stocks where short-selling transactions were concentrated, more saw their prices rise. Among the top 100 stocks with the highest share of short-selling transactions in total transaction value over the past six months, 63 stocks rose.
There was also no significant correlation between the share of short-selling transactions in transaction value and the stock price increase rate. For example, LG H&H had the highest short-selling transaction ratio among all stocks over the past six months at 19.4%, and its stock price fell 13.9% over the same period. But S-1, which ranked second in short-selling transaction ratio at 16.3%, saw its stock price rise 30.5% over six months. Youngone, third at 15.8%, and Youngone Holdings, fourth at 14.7%, posted six-month stock price gains of 32.9% and 48.5%, respectively.
There were even cases where a short squeeze occurred, widening the stock price's gains. A short squeeze refers to a phenomenon in which investors who took short-selling positions expecting a decline instead see prices rise, then buy shares to cut losses, and this process drives prices up further.
SK Square is a prime example. SK Square's short-selling transaction ratio over the past six months was 10.11%, the 26th highest among all stocks. Yet its stock price doubled over the same period. SK Square holds a 20.07% equity stake in SK hynix and tends to move in tandem with SK hynix's stock. As the semiconductor rally continued amid the recent artificial intelligence (AI) boom, SK Square's stock also jumped sharply.
The number of net short positions held in SK Square rose to 274,236 shares on Jun. 18, then plunged to 110,349 shares at the end of the same month. During this period alone, SK Square's stock rose 25.9%, suggesting short-selling investors could not hold on and unwound their positions.
Foreign investors who use short selling as a hedge tool are continuing to buy. Since the full resumption of short-selling transactions, foreigners have shown a net buying advantage of 4.114 trillion won in the domestic stock market.
A source in the financial investment industry said, "Illegal short selling is a problem, but short selling itself has a positive function that helps prices converge to fair value," and noted, "It is not that short-selling transactions make prices fall, but that short selling concentrates in stocks with a high likelihood of price declines, yet there is a tendency to misunderstand the sequence."
As the domestic stock market has shown a steep rise, net short positions have steadily increased. On 25th, the combined total for the Kospi and Kosdaq markets exceeded 15 trillion won. Just before the full suspension of sell transactions, it was in the 17 trillion won range.