Kakao Bank Rises, Krafton Falls... Diverging Trends in Short Selling

Price Movement Correlated Patterns
Special Inclusion Stocks Show Relatively Higher Short Selling Ratio

[Asia Economy Reporter Minwoo Lee] The short-selling ratios of newly included stocks in the KOSPI 200 and KOSDAQ 150 are diverging. While KakaoBank maintains a high level, Krafton is gradually reducing its short-selling activity. Analysts suggest that short-selling pressure varies depending on market characteristics and reasons for inclusion.

KakaoBank Increases, Krafton Decreases... Linked to Stock Price Trends

On the 22nd, Samsung Securities analyzed the trends of newly short-sellable stocks. First, KakaoBank’s short-selling transactions have rapidly increased since its special inclusion in the KOSPI 200 on the 10th. On that day alone, short-selling transactions reached 162 billion KRW, accounting for 24% of the day’s trading volume. Despite restrictions on short-selling since its listing, large-scale short-selling occurred simultaneously with the special inclusion. Since then, short-selling transactions have accounted for an average of 12% of daily trading volume. Although the absolute short-selling volume has decreased, the short-selling ratio has actually increased.

To short-sell, the stock must be borrowed in advance. On the special inclusion day, the 10th, KakaoBank’s lending balance was 6.94 million shares, representing 1.5% of the listed shares. By the 16th, the lending balance increased to 12.67 million shares, about 2.9% of the listed shares. Based on the Korea Exchange’s floating shares, this amounts to 12.5%. Researcher Jeon Gyun from Samsung Securities stated, "As short-selling continues, the lending balance is likely to increase for the time being."

Comparing KakaoBank’s lending balance and short-selling balance (reported short-selling holdings by holders with more than 0.01% of listed shares) as of the 14th, the short-selling balance was 2.34 million shares, while the lending balance was 11.5 million shares. Researcher Jeon explained, "Therefore, 20.3% of the lending balance is being used for short-selling. The remaining lending balance is presumed to be either waiting to be short-sold or used by institutional investors for ETF creation."

On the other hand, Krafton’s short-selling transactions are gradually decreasing. After a surge on the special inclusion day, the 10th, the absolute amount has been declining. On the first day of special inclusion, short-selling transactions amounted to 107 billion KRW, accounting for 28% of the day’s trading volume. Similar to KakaoBank, large-scale short-selling appeared simultaneously with the special inclusion and then gradually decreased.

However, the lending balance has steadily increased. It was 570,000 shares on the 10th but doubled to 1.27 million shares by the 16th, about 2.6% of the listed shares. Compared to floating shares, it is approximately 5.6%. Although the short-selling volume and lending balance are relatively smaller than KakaoBank’s, the lending balance as a percentage of listed shares is similarly in the mid-2% range.

On the day of KOSPI 200 inclusion, KakaoBank and Krafton had short-selling ratios of 34% and 28%, respectively, but their paths have diverged over time. KakaoBank’s short-selling ratio remained above 12% daily for 13 to 16 days after inclusion due to increased price volatility amid regulatory risk concerns related to its parent company. In contrast, Krafton’s price volatility decreased after inclusion, stabilizing its daily average short-selling ratio at around 8% during the same period.

Differences also appeared in lending balances. Based on listed shares, KakaoBank and Krafton’s lending balances were 2.9% and 2.6%, respectively, showing little difference. However, based on floating shares, the gap widens to 12.5% and 5.6%, more than double. Researcher Jeon noted, "As of the closing price on the 16th, Krafton’s floating market capitalization weight in the KOSPI 200 (0.87%) is larger than KakaoBank’s (0.59%), but KakaoBank has relatively larger lending balances and short-selling. This suggests that short-selling is conducted in line with stock price trends."

Short-Selling Ratios Higher for Special Inclusion Stocks than Regular Inclusion

Since short-selling was permitted in May this year, the weekly average short-selling ratios of KOSPI 200 and KOSDAQ 150 constituent stocks have been around 4.1% and 4.7%, respectively. In the first week of short-selling allowance, these ratios reached 5.9% and 8.7%, but have since stabilized around 4%. Meanwhile, short-selling balances showed a gentle upward trend but have mostly plateaued since mid-July.

The short-selling ratio of newly included KOSPI 200 stocks (June regular changes) generally remains below the market average, excluding the inclusion day. In contrast, stocks specially included in September maintain higher short-selling ratios than the market average after inclusion. This is attributed to IPO timing and unstable supply-demand conditions due to special inclusion, resulting in relatively higher short-selling exposure. Meanwhile, newly included KOSDAQ 150 stocks (June regular changes) show short-selling ratios nearly twice the market average, likely due to higher exposure to arbitrage and contract-for-difference (CFD) trading.

Researcher Jeon advised, "Ultimately, short-selling ratios and exposure vary depending on market characteristics and reasons for inclusion. Investors can choose to avoid or actively participate in excessive short-selling pressure on the inclusion day and monitor supply-demand changes in the stock compared to the market average short-selling pressure."

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