Short selling piles up on Kospi’s top three stocks

South Korea’s three largest companies by market cap -- Samsung Electronics Co, LG Energy Solution Co. and SK Hynix Inc. -- were heavily short sold this month, indicating a bearish outlook for the domestic stock market.

Short selling on Kospi-listed stocks amounted to an average of 491 billion won ($343 million) a day so far this month as of Sept. 28, according to the Korea Exchange. The figure is a 40% surge from the whole month of August.

Samsung, with a market cap of 311 trillion won ($220 billion), was shorted 27 billion won on average a day. The amount is about twice the 15 billion won shorted in August.

Short sales on the country’s largest company accounted for 3.32% of the value of its shares that changed hands this month, compared with 2.22% in August.

LG Energy Solution, a leading rechargeable battery maker, was shorted for 26 billion won, representing 13% of its shares traded this month. The September number was more than three times the amount of its shorted stock in August, when it took up 5% of the stock’s trade value.

SK Hynix, the world’s No. 2 memory chipmaker, was a key target of short sellers as well.

Short selling on Korean stocks diminished in both July and August when the market staged a bear market rally.

But resumed short selling on top South Korean stocks has raised the likelihood that the Kospi could fall below the psychologically important 2,000 mark, said Eugene Investment & Securities analyst Huh Jae-hwan.

This month, the benchmark Kospi index has slid 12% as of Sept. 28, battered by continuous selling by foreign investors on the back of the won's steep decline against the dollar.

On Wednesday, the Kospi tumbled to its lowest level in more than two years.

To calm investor jitters, financial regulators are understood to be considering a short-selling ban on all listed stocks. Currently, short selling is allowed for a limited number of large caps on both the Kospi and the junior Kosdaq markets. 

They also plan to mobilize a 10.7 trillion won stock market stabilization fund to support the market. Back in 2020, the fund was established after the Korea Exchange and the country’s leading financial services companies pledged to cough up money when needed.

NEXT SHORT-SELLING TARGETS?

Hyundai Motor Securities analyst Kim Joong-won cautioned that Lotte Corp. and telecom service provider KT Corp. could become the next targets of heavy short selling.

The balance of their shares borrowed from brokerage companies but still unreturned is lower than that of other listed companies. That means a large number of investors are ready to short both stocks before they buy them back later at lower prices and return them to brokers.

Lotte Corp. is the holding company of the retail-focused Lotte Group.

Write to Se-Yeong Choi at seyeong2022@hankyung.com
Yeonhee Kim edited this article.