Shorting on Kospi facilitates tighter monitoring and hedging during a bearish rally

Short-selling by foreign investors on the Kospi has eased since local authorities stepped up the crackdown and monitored illegal short-selling practices and excessive short-selling of certain stocks, to the benefit of secondary batteries and domestic services stocks to hedge the upside of a bearish rally.

According to the Korea Exchange on Tuesday, the short sale in Kospi shares stood at 304.7 billion won ($227 million) on Monday, down 37% from 486.4 billion won on July 1. The ratio of short selling to trading volume of the target stocks fell to 4.99% from 5.6% over the same period. The margin account balance on which short positioning is based narrowed to 65.93 trillion won on August 22 from 74.35 trillion won on May 31, suggesting much lower demand pending. a short sale.

The ebb suggests short hedging activity amid modest upside from the bearish rally.

Short hedging refers to buying back borrowed stock to close out an open short position with a profit or loss. Institutions had shorted Korean equities anticipating a market slowdown until June. They rushed to cover losses amid a modest rally.

Hedging mainly focused on the values ​​of lithium-ion batteries and those of sectors benefiting from the economic reopening, such as hotel services and travel agencies, bodes well for these values.

Short selling on shares of Hotel Shilla, which was equivalent to 7.35% of its trading volume on July 1, slipped to a ratio of 5.35% last Thursday. During the same period, its share price recovered 4.79%. Short selling on Lotte Tour Development also fell to a 7.83% share from 8.23% in the same period after the company managed to raise 4.5 times its equity through asset revaluation.

The shorting ratio on EcoPro BM fell to 3.85% from 6.83% over the quoted period. Short selling on L&F and POSCO Chemical also fell to 3.18% and 1.77%, respectively from 3.50% and 2.87%.

Short selling has also become subdued after Korean financial authorities last month introduced tougher measures against any illegal short-selling activity. Under the new rule, when short selling represents more than 30% of the turnover of a stock trade and causes the stock price to fall by 3% or more, or when a turnover short is twice the average, short selling on the stock is suspended.

If the share price falls by more than 5% despite the suspension, the ban is extended for an additional day.

By Kim Je-gwan and Jenny Lee

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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