Bio and Bank Stocks Surge Amid Short-Selling Ban

Focus on 'Beneficiary Stocks' with Large Trading Volume

[Image source=Yonhap News]

[Asia Economy Reporter Ji-hwan Park] As financial authorities have imposed a full ban on short selling to counter the stock market downturn caused by the spread of the novel coronavirus infection (COVID-19), investor interest in stocks benefiting from short selling regulations is also increasing. Experts predict that stocks heavily targeted by short selling, especially in the KOSDAQ market, and banking sectors will benefit.

According to financial authorities on the 16th, the Financial Services Commission held an emergency meeting on the 13th and decided to ban short selling for all listed stocks on the KOSPI, KOSDAQ, and KONEX markets for six months from that day until September 15. Earlier, on the 10th, the FSC had eased the criteria for designating overheated short selling stocks for three months and extended the short selling ban period from one day to two weeks. However, the stock market continued to plunge, and when the KOSPI fell to 1680.6 on the 13th, breaking below the 1700 level for the first time in nine years, an emergency measure of a temporary short selling ban was implemented.

In the securities industry, it is expected that biotech stocks in the KOSDAQ market, which had a high proportion of short selling balances, will be the first to benefit from this measure. Short selling is a trading method of selling "stocks that one does not own." Investors borrow stocks from securities firms, anticipating a decline in the stock price of a specific company, sell them, and later repurchase the stocks at a lower price to return them, thereby making a profit. In other words, the more the stock price falls, the greater the profit, which is why short selling is pointed out as a cause that amplifies price declines in a bear market.

As of the 13th, the top stocks with large short selling balances in the KOSDAQ market include mainly biotech stocks such as HL Biopharma (KRW 454.9 billion), Celltrion Healthcare (KRW 319.5 billion), Helixmith (KRW 191.9 billion), and SillaJen (KRW 76.9 billion). As of 10 a.m. that day, HL Biopharma (6.95%), Celltrion Healthcare (2.33%), Helixmith (4.21%), and SillaJen (4.71%) all showed upward trends.

Kim Ye-eun, a researcher at IBK Investment & Securities, explained, "Biotech stocks with a high proportion of individual investors may see stock price increases due to short covering (buying back shorted stocks) triggered by the short selling ban." Since short selling is banned for a considerable period of six months, rather than waiting for the stock price to fall while paying borrowing fees, buying volume from short covering is expected to increase.

Bank stocks are also expected to benefit in terms of supply and demand compared to other sectors due to this short selling ban. Choi Jung-wook, a researcher at Hana Financial Investment, stated, "The short selling ratio of bank stocks has been relatively high at 12.4% of total trading volume since January, so the supply-demand benefits are expected to be greater than in other sectors." In particular, Woori Financial Group's short selling ratio has reached 15.4% since January, indicating it will be the biggest beneficiary among banks.

However, there are also many forecasts that the strengthening of short selling regulations will not have a significant impact on the overall stock market. Short selling is not a key factor determining the market's price direction, and since the KOSPI fell by 3.4% and 12.1% during the short selling bans in 2008 and 2011 respectively, premature expectations should be avoided.

This content was produced with the assistance of AI translation services.