Foreigners' Massive Sell-Off "All Short Selling?"... Loan Balance Hits 77 Trillion 'Year-Round High'

[Asia Economy Reporter Lee Seon-ae] Although the KOSPI recovered to the 3040 level yesterday, investors' concerns about short selling, identified as one of the causes of the 'KOSPI plunge,' have not easily subsided. With the loan balance, a leading indicator of short selling, reaching a yearly high, and a significant portion of foreign investors' individual stock sales estimated to be short sales, there is anxiety that this trend will continue.

According to the financial investment industry on the 27th, foreign investors net bought about KRW 2.1617 trillion in the KOSPI market over 23 days from August 23 to September 27, but from then until October 14, over 11 days, they net sold about KRW 3.4556 trillion. The net buying in September was mostly non-arbitrage programs at KRW 2.2162 trillion, while arbitrage programs and individual stocks recorded net sales of KRW 36.6 billion and KRW 17.8 billion, respectively. The net selling in October was tallied as individual stocks KRW 1.6496 trillion > non-arbitrage programs KRW 1.6423 trillion > arbitrage programs KRW 163.8 billion.

In other words, non-arbitrage programs reversed to net selling, and net sales of individual stocks surged, concentrating foreign investors' net selling. Notably, some of the increased net sales of individual stocks are likely short sales. This is because loan balances and short selling surged during the same period. Loan balances increased by 3.196 billion shares during the net buying period and by 7.084 billion shares afterward. Considering the relatively short net selling period, the loan balance surged 7.5 times compared to the previous period. Also, the daily average short selling volume, which was 7.71 million shares during the net buying period, increased by 26.9% to 9.78 million shares during the net selling period.

Shim Sang-beom, a researcher at Mirae Asset Securities, explained, "Although the exact proportion of short selling in foreign investors' net sales of individual stocks is unknown, the amount of foreign investors' individual stock sales during the net selling period was KRW 7.4 trillion, and the total short selling amount was KRW 5.8 trillion. Assuming 70% of short selling is by foreign investors, then 54.3% of foreign investors' individual stock sales were short sales."

Currently, the loan balance, a leading indicator of short selling, is at a yearly high. According to the Korea Financial Investment Association, on the 14th, the loan balance exceeded KRW 75 trillion for the first time since July. Since then, it has fluctuated between KRW 75 trillion and KRW 76 trillion, increasing to KRW 77.3263 trillion as of the 26th. This is the highest record since June 20, 2018 (KRW 77.6268 trillion).

Since the KOSPI downturn began in July, the short selling transaction amount has been increasing. The average daily short selling transaction amount this month was KRW 462 billion, about KRW 100 billion more than in July (KRW 361.1 billion). By stock, in the KOSPI market, LG Display (7.87%), Lotte Tour Development (6.75%), HMM (5.76%), and in the KOSDAQ market, CIS (7.82%), SillaJen (6.31%), and GTreeBNT (5.88%) showed high proportions of short selling loan balances.

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