Subscribe
E-Paper
 |
| Financial Services Commission Chairman Eun Sung-soo attends a meeting with CEOs from financial institutions and securities firms here, at the Korea Exchange's Seoul office on April 15. Yonhap |
By Lee Min-hyung
With the country set to resume some forms of short-selling after a 14-month ban, investors and stock market analysts said biotechnology stocks could be affected by the resumption.
From May 3, retail investors on either the KOSPI or the tech-savvy Kosdaq will be allowed to "borrow" shares. Despite the partial resumption, the financial authorities will decide later whether to allow the short-selling of other listed stocks.
The overall consensus is that the partial lifting will not have a noticeable impact on the stock market, and the intensity of the partial resumption will not be enough to derail its current bullish run. But market analysts said electric vehicle (EV) and biotech shares could be the primary targets of short-selling.
"Targets of short-selling could be focused on EV shares and bio stocks as I believe these are the shares that may be overvalued compared to their peers," Kim Il-tae, a senior fund manager at Meritz Investment, said Sunday.
General thoughts are stocks exposed to short-selling will experience price corrections over the next few days after the temporary ban is lifted.
Retail investors have for years cried foul over the practice of short-selling, which allows investors to profit from stocks when they go down in value. Retail investors have also urged the financial authorities to keep extending the ban, to stop institutional and foreign investors from making "unfair" profits.
The benchmark KOSPI rose more than 10 percent during the first four months of the year on top of a 30 percent increase last year.
With the Financial Services Commission (FSC) deciding to allow some forms of short-selling this time after extending the ban twice after the pandemic shock erupted in March last year, investors are advised to make careful stock transactions at least for the next few weeks.
Biotechnology is also one of the representative sectors expected to be hit hard by the resumption as prices of bio stocks have experienced huge volatility for the past year. For instance, Celltrion, a biopharmaceutical firm here, is considered to be one of the Korean stocks most vulnerable to short-selling.
"That's because appetite for bio stocks has increased based on expectations that their valuations will rise further in sync with governments' moves to invest more in COVID-19 treatment candidates. And that could be a good excuse for investors to take profits through short-selling," said Park O-ki, a senior analyst at IBK Investment.
The FSC applied the measure in 2008 and 2011, though the KOSPI bounced back after a couple of months after short-selling was resumed. The KOSPI 200 index increased 10 percent about three months after the ban was lifted.
"After short-selling resumed during the two periods, the KOSPI and Kosdaq remained weak for about a month, but the indices gained upward momentum for the next three to six months," eBest Investment & Securities analyst Yeom Dong-chan said.
Even if it is hard to generalize by citing the two previous cases, a common feature is that both large-cap and mid-to-small-cap stocks reported weak growth for a month after short-selling resumed, according to the expert.
"But the local stock markets, led by blue chips, bounced back shortly," he said.
According to data from the Korea Exchange, fears of a short-selling resumption appear to remain in place in the securities markets. Most of the top 10 stocks on the KOSPI reported drops last week, which was the last trading day before the resumption of short-selling.
The stock price of Samsung Electronics, the largest company by market capitalization, dropped 0.24 percent to close at 81,500 won ($72.93). Shares of other major tech companies also dropped 0.2 percent to 3 percent on the same day. Samsung Biologics was the only firm among the top 10 whose closing price rose.
The FSC is in a position to step up monitoring of any illegal short-selling and take steps if the market shows signs of instability.
Huh Jae-hwan, an economist at Eugene Investment & Securities, said retail investors should be cautious over the resumption of short-selling, but do not have to consider it to be a serious fear factor.
"Our view is that foreign or institutional investors cannot engage in short-selling proactively given the current financial market conditions here," he said. "This is because the outlook for most firms' earnings remains promising this year and next year, so it is hard to come to an abrupt conclusion that short-selling can guarantee gains from the viewpoint of institutional and foreign investors."
