Domestic Stock Market Enters 'Reverse Performance Phase'... Short Selling Trading Volume Increases Amid Uncertainty

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] As the bear market rally (a short-term rebound in a bear market) that has continued since last July comes to an end and the stock prices and corporate profits both decline in September, entering a period of negative earnings, market instability continues, leading to an increase in short selling trading volume.

According to the Korea Exchange on the 12th, the average daily short selling trading volume over six trading days from the 1st to the 8th of this month was 492.5 billion KRW. In particular, the short selling trading volume on the 1st of this month was 678.4 billion KRW, surpassing 600 billion KRW in a single day for the first time since June 17 (772.3 billion KRW).

The average daily short selling trading volume this month decreased by 14.4% compared to the January daily average (575.2 billion KRW) but increased by 41% and 35% compared to August (349.4 billion KRW) and July (364.1 billion KRW), respectively.

In July and August, following the release of the U.S. Consumer Price Index (CPI) in June and the Federal Open Market Committee (FOMC) meeting in July, the stock market experienced a bear market rally. This year, the monthly average daily short selling trading volume was lowest in August and July, in that order.

The securities industry analyzes that the bear market rally has ended, uncertainty in the second half of the year has increased, and the recent sharp rise in the KRW-USD exchange rate has led to an increase in short selling trading volume in the domestic stock market.

Since Federal Reserve Chairman Jerome Powell’s Jackson Hole speech at the end of last month, the KOSPI has fallen by 3.9% from August 29 to the 8th of this month.

With the strong dollar phenomenon continuing, the exchange rate recently surpassed 1,380 KRW per USD.

Jung Myung-ji, head of the Investment Information Team at Samsung Securities, said, "Since the Korean market is mostly composed of export-oriented stocks, foreign investors who frequently use short selling strategies cannot help but consider the exchange rate and oil prices. In an environment where the exchange rate is rapidly soaring, and Korea must import energy and is running a trade deficit, conditions have been created that justify short selling in the Korean stock market."

He explained, "The Korean market allows various strategies such as short selling individual stocks while buying market futures to hedge (risk avoidance), making it the most liquid market for funds among emerging markets. The phenomenon of increased short selling in the Korean market during periods of a strong dollar has been frequently observed in the past."

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