This photo shows the dealing room of Hana Bank in Seoul, March 28. Yonhap

Korea is set to fully lift the ban on stock short selling this week for the first time in five years, and shipbuilders, steelmakers and battery makers will likely be the targets of such trading practices, according to market watchers Sunday.

The country imposed a temporary ban on short selling in November 2023 after a series of naked short selling violations involving several global investment banks were discovered.

Starting Monday, short selling will be allowed for all listed firms for the first time since March 2020, when the authorities banned short selling for listed firms amid a market rout caused by the COVID-19 pandemic.

The ban was partially lifted in May 2021 before it was reimposed in 2023.

Ahead of the short selling resumption, the Korea Exchange (KRX), the bourse operator, developed a new system to detect any illegal practices. The financial regulator also drew up new regulatory changes.

The financial watchdog said earlier it will enhance market monitoring and implement measures to prevent excessive volatility of certain stocks for up to two months after the short selling ban is lifted .

Market watchers said battery makers, shipbuilders and steelmakers may be the targets of short selling as they recently have risen sharply on hopes for support policies and an industry turnaround.

"Overbought stocks may experience short-term volatility," said Lee Kyung-min, an analyst at Daishin Securities. "But the short selling is itself positive for foreign capital inflows." (Yonhap)