| Financial Services Commission (FSC) Vice Chairman Do Kyu-sang, left, speaks while attending a National Assembly meeting on Yeouido in Seoul, April 26. Yonhap |
Watchdogs pledge 'toughest punishment' for illegal short-selling
By Lee Min-hyung
The partial resumption of the short-selling of shares on the local stock market Monday did not cause much confusion, even though some in the overvalued sectors, such as biotechnology and electric vehicle batteries, plunged.
According to data from the Korea Exchange, the benchmark KOPSI did not fluctuate by a huge margin despite concerns that the partial resumption would derail investor sentiment. The main bourse closed Monday at 3,127.20, down 20.66 points or 0.66 percent, from the last trading day.
Market analysts voiced a consensus that the market was unlikely to be shaken by the impact of short-selling from the short- to mid-term.
"The KOSPI experienced only a slight adjustment Monday, and this proves that fears surrounding short-selling are not so much of an issue," Hwang Sei-woon, an economist at the Korea Capital Market Institute, said.
But as expected, some biotechnology and secondary battery shares dropped precipitously, which Hwang said was driven to some extent by the resumption of short-selling.
"Shares in the aforementioned sectors have surged over a short period of time, and there have been comments about overvaluation," he said.
Shares of Samsung Biologics, the nation's biggest biotechnology firm, dropped 3.86 percent; while those of other leading bio firms also fell within a range of 3 percent to 7 percent. Shares of Celltrion, which has been considered one of the Korean stocks most vulnerable to short-selling, closed at 249,500 won ($222), down 6.2 percent.
Leading battery makers' shares also closed with declines of between 2 percent and 3 percent. Shares of LG Chem, which reported record earnings last week, fell 2.68 percent, and Samsung SDI shares dropped 2.29 percent.
"Starting from the beginning of 2021, most local stocks have already undergone a months-long readjustment period, so the impact of the short-selling resumption on the main bourse appears to have been limited," Hwang noted.
Regardless of the short-selling impact, the outlook for a continued rally on the KOSPI throughout the year remains promising, as global financial institutions are revising up the nation's GDP growth forecast on the recovery of exports, according to the economist.
On the same day, financial overseers issued a warning of imposing the "maximum penalty allowable by law" for any illegal short-selling.
"We are going to actively take relevant steps against any acts incurring market disturbance ― such as illegal short-selling ― by inflicting the toughest penalties within the boundaries of the law here," Financial Services Commission (FSC) Vice Chairman Do Kyu-sang said in an online meeting monitoring financial risk.
The repeated warnings against any forms of illegal short-selling reflect retail investors' concerns over the resumption.
"The ban on short-selling on the local stock market was partially lifted as of Monday, and we expect our tightened monitoring measures to eradicate any illegal behavior on the market," Do said.
The FSC also pledged to partner with the Financial Supervisory Service and the Korea Exchange to step up monitoring of any unusual stock transactions.
Under the strengthened punitive measure, those who engage in naked short-selling will face fines of three to five times their undue gains or imprisonment for at least a year.
Other analysts said that the short-selling resumption could be a boon for the overall growth of the market.
"The partial lifting of the short-selling ban may confuse the market in terms of supply and demand, but expectations are rising that this will boost foreign capital influxes," Daishin Securities analyst Lee Kyoung-min said.
Even if the short-selling resumption has weakened investment sentiment particularly among retail investors, other external financial factors ― such as the possibility of a strengthened won against the dollar or signs of the COVID-19 pandemic subsiding ― will pave the way for more foreign investors to engage in a buying spree," Lee said.