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| An electronic signboard at Hana Bank branch in Seoul shows the KOSPI reached 3,016.23 points in the morning trading session, Wednesday. Thirteen years after surpassing 2,000-mark in July 25, 2007, the benchmark stock index tested the historic 3,000-points level. Yonhap |
By Lee Kyung-min
The stock market took a breather, Wednesday, following a rapid uptrend over the past few weeks that culminated in the benchmark stock index KOSPI reaching a high of 3.027.16 in the morning, exceeding the symbolic 3,000 points for the first time.
The continued strong bullish sentiment is underpinned and enabled by cheap borrowing costs amid record-low interest rates, coupled with tightening real estate policies that is forcing investors to seek alternatives to the property market.
While the KOSPI closed at 2,968.21, Wednesday, down 22.36 points or 0.75 percent, from the previous session, the figure is considered a minor setback following the uptrend over the past two months since November when it hovered around 2,300. Korea Exchange (KRX) data showed the trading volume was 1.7 billion shares worth 29.27 trillion won ($26.7 billion).
The stock market is likely to continue its bullish run, according to Korea Standard Chartered Bank's Korea investment strategist Hong Dong-hee. "Major IT and bio stocks are among the most bought, and the cheap borrowing costs will continue long after the pandemic shows signs of full containment."
The "overflow of liquidity" is illustrated by Bank of Korea (BOK) data that showed the M2 money supply reaching 3,150.5 trillion won in October, up 34.7 trillion won or 1.1 percent from the month before. This was a 9.7 percent jump year-on-year, and the second sharpest month-on-month increase after May's 35.4 trillion won increase, since the central bank began compiling related statistics.
The M1 supply includes highly liquid financial instruments including cash, checkable deposits and traveler's checks, whereas M2 encompasses M1 plus assets with lower liquidity such as savings, certificates of deposit and money market funds. A rise in M2 is explained by an increase in borrowing backed by the low-interest rate.
Accompanied by the weeks-long bull market are calls for an extension to the ban on short-selling, an emergency measure put in place in March 2020 to help place a floor in the then-plummeting stock market at the beginning of the COVID-19 pandemic. The six-month extension was renewed last year, and is set to expire March 15.
Short-selling refers to the sale of borrowed shares with expectation of earning profits from a price fall when the shares are bought back at a lower price. It is widely used by investors seeking leverage to net bigger gains.
Some say the ban has restored vibrancy to the stock market. But the market will be reduced yet again to an easy investment method for foreign and institutional investors at the expense of many individual retail investors, if it is allowed without fundamental changes to the system.
The claim has merit since short-selling seeks to gain through borrowed stocks betting that they will fall in the foreseeable future.
Ruling party lawmakers mindful of public sentiment are seeking to have the ban extended, a political move prior to the upcoming April 7 by-elections.
Rep. Park Yong-jin of the Democratic Party of Korea (DPK) requested the Financial Services Commission (FSC) to reconsider the scheduled resumption, Tuesday.
"Some brokerages were found to have engaged in illegal short selling. If short-selling resumes, far more serious illegal activities will dislocate the market and the resulting stock price fall and market confusion will end up causing damage to retail investors."
However, no immediate policy course correction is expected unless a fresh market crash baffles the financial authorities. FSC Chairman Eun Sung-soo said short selling would be allowed to resume during a Special Committee on Budget and Accounts meeting at the National Assembly, Nov. 10, 2020.
