Year-End Short Selling Position Liquidation Expected... Watch Overly Declined Stocks Closely Next Month

Attention on IT and Communication Industries

[Asia Economy Reporter Myunghwan Lee] "Let's take another look at the fallen stocks."

There is a forecast that it will be necessary to pay attention to ‘overly fallen stocks’ in the domestic stock market next month. It is analyzed that a stock price rebound can be expected due to the liquidation of short-selling positions at the end of this year.

According to the Korea Exchange on the 25th, from the 1st to the 24th of this month, the proportion of short-selling transaction value to the total transaction value in the KOSPI market averaged 9.94%. This figure exceeds the average short-selling ratio of 7.06% for the entire year by nearly 3 percentage points. The proportion of short-selling transaction value, which had been in the 6-7% range from January to August this year, rose by more than 1 percentage point in one month to 8.49% last month.

Loan transactions also increased. According to Hanwha Investment & Securities, since August, the ratio of loan balance to floating shares for stocks included in KOSPI 200 and KOSDAQ 150, where short-selling is possible, was 6.8%. The loan balance ratio, which averaged 6.3% from January to July this year, rose by 0.5 percentage points after August.

By industry, the short-selling ratio increased in all sectors except ‘Consumer Staples’. In particular, the short-selling ratios in the Energy and IT sectors rose the most. The monthly average short-selling ratio in the Energy sector surged by 6.3 percentage points from 6.6% in January to 12.9% in October. The IT sector also increased by 5.1 percentage points from 4.4% to 9.5% during the same period.

Such an expanded short-selling position is expected to be liquidated within the year. Although the stock market fell this year and profitable returns were made through short-selling, there is a forecast that positions may be liquidated as a possibility of a year-end market reversal is sensed.

According to major foreign media reports, within the U.S. Federal Reserve (Fed), a so-called ‘speed control theory’ is being raised that the rate hike in December should be reduced to 0.5 percentage points. If the rate hike is reduced, the downward pressure on the stock market will lessen.

Hanwha Investment & Securities advised that if one wants to prepare in advance for the liquidation of short-selling, it is necessary to pay attention to overly fallen stocks. Researcher Seungyoung Park of Hanwha Investment & Securities said, "Usually, before the end of the year, foreign buying is expected, so dividend stocks are purchased, but this year, dividend stock purchases may not work, so it seems better to focus on overly fallen stocks," adding, "Global interest rates are still high, and trust in dividends has weakened due to recent credit issues."

Hanwha Investment & Securities also advised that it may be worth buying stocks in the IT and Communication sectors, which have seen a lot of short-selling transactions and an expansion of loan balances since August.

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