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World’s longest short-selling ban ends in Korea

(Bloomberg) – Starting next week, investors in South Korea will be able to short the country’s largest stocks as Seoul ends the longest trading strategy ban imposed by a pandemic. This is to the dismay of retail traders, who now dominate the local market. On May 3, Korea is set to partially lift the ban it imposed in March last year on the key hedge fund strategy. When this is the case, individual traders – who have come to absorb around three-quarters of the market’s daily trading volumes amid the pandemic – will find a once insurmountable trading strategy much easier to implement, in part through increased numbers. brokerage firms lining up to lend them shares. Yet many say they would be at a disadvantage compared to large institutional investors and would prefer short selling, which they say would reduce their profits, to be kept banned in the best companies in the world. Hedge funds have much more advanced access to information, financial strength and trading skills, which means that even when allowed to sell short, retail investors do not face any rules of the game. fair, said Jung Eui-jung, head of the Korea Stockholders Alliance, a group of influential day traders. “Few countries are more hostile to short selling than South Korea, where many investors have suffered,” he said, referring to massive declines. seen in the past in many stocks when short selling was allowed – including biotech company Celltrion Inc. The group, which earlier this year launched a ‘bus’ campaign to get its anti-short selling message heard , seeks “fairer” rules around the practice, among which individual investors have access to the same high levels of margin lending as their institutional counterparts. READ: Under-siege short sellers everywhere are really hurting in Korea South Korea, like many countries around the world, has banned short selling. -sale to tame markets affected by the pandemic early last year. The ban led foreign investors to flee, but also saw retail investors stranded in Covid lockdowns and armed with cheap trading apps take over to boost the Korean stock market. twice since then, the Asian nation is now the only major market to have stuck to its ban: Italy and France, for example, have only maintained the restriction for a few months while Indonesia, the latest holdout after Korea, said earlier this year that it would allow certain stocks to be short-sold. , investors will be able to borrow shares of the benchmark Kospi 200 and the small cap Kosdaq 150. This represents 22% of the shares of Kospi, or 88% of the market value of Kospi. A decision on whether or not to allow short selling for other stocks should be made later. After completing a mandatory 1.5-hour short-selling training session, retail investors, known as’ ants Because of their herd behavior, will find great success there. That’s because they can now short sell up to 30 million won ($ 27,000) of shares with that limit increasing over time, and the top 28 brokers in the country will lend them shares – up to one. maximum of 2.4 trillion shares. Previously, only six brokerage houses offered retail investors short-selling privileges and only amounted to a maximum of 20.5 billion won of shares, and the ban is expected to be lifted at a time when shares in Korea South hit record levels this month. The benchmark Kospi index has climbed 12% so far this year, adding to its 31% surge in 2020. It was down 0.2% at the start of Tuesday, while the broader index MSCI Asia Pacific fell 0.3%. Last year, the markets did not experience a market collapse, so when short selling picks up, the markets could suddenly collapse and they could burn, ”said Jung of the Korea Stockholders Alliance. liner HMM Co., biopharmaceutical company Medytox Inc., cosmetics company Amorepacific Corp. and Korea Aerospace Industries Ltd. are among the companies whose stock prices appear to be overvalued relative to their peers, and therefore could be a target for short sellers, Kim Min-gyu, a quantitative analyst for KB Securities Co., said in a report. Overall, investors seem less concerned about the impact on the broader market. The last two short sales were reinstated after a ban, the Korean stock market was corrected and volatility increased, strategists. at Goldman Sachs Group Inc. wrote in a report earlier this month. Still, stocks managed to regain that lost ground after about a month, they noted. Strategists maintained their overweight in South Korean stocks and said they expected foreign flows to pick up once short selling resumes. of the extreme volatility of Covid-19, the need for temporary measures, ”said Lyndon Chao, Hong Kong-based head of equities at ASIFMA, a regional financial industry association. “But Korea implemented the longest short sale ban we’ve seen.” “The market is currently at an all time high, volatility has returned significantly to pre-Covid levels, so the industry is encouraged to see the short – the ban on sale is now lifted,” he said. added. (Updates pricing, adds Kospi decision Tuesday in 12th paragraph.) For more articles like this please visit us at bloomberg.com © 2021 Bloomberg LP

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