[Good Morning Stock Market] Short Selling Resumes Today... Impact on Transportation, Casino, Entertainment, and Gaming Sectors

Short Selling Resumes for KOSPI 200 and KOSDAQ 150 Stocks
High Stock Loan Balances in Entertainment, Transportation, Gaming, and Display Sectors

Focus on Fundamentally Strong Industries
Financial Stocks Unaffected by Short Selling Also Attractive for Investment

[Asia Economy Reporter Minji Lee] Opinions are divided on the direction of the index ahead of the resumption of short selling on the KOSPI200 and KOSDAQ150 stock indices on the 3rd. Short selling is an investment technique where stocks are borrowed and sold when a price decline is expected, and then bought back at a lower price to repay the borrowed shares, realizing a profit. The market sees little concern about a sharp drop in the index, but some individual stocks may be affected. Experts advise that if investors focus on stocks with solid earnings improvement trends, they can avoid the impact of short selling.

◆ Euntaek Lee, KB Securities Researcher = Looking at the characteristics of stocks with increased loan balances, which represent short selling demand, recently, short-term price momentum has weakened, and the proportion of futures based on these stocks is small. Also, stocks that had high loan balances before the short selling ban, which were familiar with short selling, have seen significant increases in loan balances. Industries meeting these conditions include transportation, casinos, entertainment, gaming, and display sectors.

However, the duration of the impact from the resumption of short selling is expected to vary depending on each company's fundamentals. Accordingly, investors can view the adjustments caused by concerns over short selling as buying opportunities. Although loan balances have increased, investors should approach stocks with good fundamentals; secondary battery and display sectors are promising. Furthermore, regardless of adjustments, shipbuilding and banking stocks, which are relatively free from short selling and have expected profit improvements, are also worth investing in.

◆ Hyukjin Lee, Samsung Securities Researcher = Concerns about the resumption of short selling were already priced in last month. However, considering that the market trend is thoroughly stock-specific, investors should respond accordingly. First, attention should be paid to companies with solid earnings. The winners of the first-quarter earnings season are cyclical sectors such as chemicals, refining, and steel. This is because the recovery in upstream demand and the widening spreads have led to earnings surprises exceeding market estimates. The normalization of economic activities due to vaccination and faster-than-expected consumption recovery suggest that the record-breaking earnings cycle of cyclical stocks is likely to continue.

IT and automobile sectors are showing weakness due to concerns over parts and materials supply shortages. However, considering that the root cause of these shortages is strong demand, active buying is deemed necessary. It is also worth expanding interest to financial and consumer stocks, which do not have valuation burdens. Recently, finding stocks without overvaluation has been a trend in the market, so although these stocks have been overlooked by investors, attention should be given to companies with no short selling pressure, improving earnings, and attractive dividends.

◆ Namjoong Moon, Daishin Securities Researcher = As interest rate concerns ease, the stock market is showing an upward trend again. Depending on the development of COVID-19 and vaccine availability, emerging markets are showing clear decoupling between countries, and preference for developed countries with relatively greater fiscal stimulus capacity is strengthening. Last month, global stock markets rapidly entered an upward phase, raising concerns about overheating, but the market is still expected to rise further this month.

However, there are variables. The first variable is the spread of COVID-19. Last year, during the US driving seasons?the last week of May and the first week of September?the spread of COVID-19 accelerated, and the US stock market faced adjustment pressure during these periods. This year, as activities increase ahead of the driving season due to fatigue from social distancing lasting over a year, there is a possibility that this could be used as a pretext for market corrections.

Concerns about the Federal Reserve's (Fed) monetary policy are also expected to act as a variable. Although the US economy is rapidly improving, market participants' concerns are greater than those of the central bank. However, considering that during the tapering start in May 2013, the S&P 500 index actually rose by 2.1%, it is more important to focus on the fundamental improvements that underpin stock price increases rather than worrying excessively.

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