Connect with us

Hi, what are you looking for?


Retail investors vow war if short sellers end South Korea stock rally

TWO MEN walk past an electronic board showing the Korea Composite Stock Price Index (KOSPI) at a dealing room of a bank in Seoul, South Korea, March 13, 2020. — REUTERS/KIM HONG-JI

RETAIL traders who drove record gains in South Korean stocks during the darkest days of the pandemic are bracing for a new threat — the return of institutional players betting on share-price declines.

The world’s longest ban on short-selling stocks comes to an end on Monday, and it’s got individual investors scrambling for strategies to protect their portfolios.

Some have cashed out large chunks of their holdings over recent weeks, while others are toying with the idea of trying short selling themselves. One influential group, the Korea Stockholders Alliance, has even vowed to gather day traders into a force to fight short sellers — much the same way their US peers took on Wall Street over GameStop Corp. — if equities begin to tumble.

“I agree in theory that we need short-selling because it reduces bubbles and helps the market find the right price of assets,” said Hong Seung-jae, a 32-year-old office worker who gets his trading tips from YouTube and the internet during his 40-minute commute to work on the Seoul subway. “But individuals are at a huge disadvantage given the amount of information and deep pockets institutions have.”

Korea is the last key market with a prohibition on short selling and is allowing the practice again after the economy bounced back to its pre-pandemic peak last quarter.

The resumption is also coming at a time when the Kospi Index is near a record high, having climbed about 10% this year, after surging by almost a third in 2020 in the best performance among major world indexes. And the resumption is accompanied with heavy penalties for wrongdoing, including jail for anyone who sells shares they haven’t actually borrowed.

But none of this is enough to quell concern among the nation’s individual traders, who have had relatively free rein since foreign funds pulled back after the ban took effect in March last year. They’ve got a lot at stake, having snapped up about 95.5 trillion-won ($86 billion) of local equities in net buying in the period since then, according to Korea Exchange data.

“If the Kospi falls back into the 2,000s level, we will mobilize a huge number of retail investors to rally against short sellers,” said Jung Eui-jung, head of the Korea Stockholders Alliance, which led the unsuccessful K-streetbets campaign to keep the ban in place permanently.

While retail traders have historically found it difficult to go head-to-head with institutional money, GameStop’s dramatic run-up in January may have changed the dynamic. Investors on WallStreetBets — the Reddit forum that inspired K-streetbets — encourage users to dive into GameStop stock and also bid it up using a sophisticated options strategy, creating a short squeeze that was painful for hedge funds like Melvin Capital Management.

The Kospi closed at 3,147.86 on Friday, about 5% above the level that would put the alliance on alert.

While retail traders have grown to account for more than three-quarters of daily turnover, that doesn’t mean they could inflict losses on hedge funds like those sustained in the US GameStop’s surge, said Hwang Sei-woon, an economist at the Korea Capital Market Institute.

“There is no clear consensus on who short sellers would be and who to target,” said Mr. Hwang, who started wearing a protective vest when commuting to work after receiving death threats for advocating short-selling.

It won’t just be hedge funds from abroad that employ strategy, Korean mom-and-pop traders will be among them.

Chae Ae-kyung, a 62-year-old homemaker who began buying stocks during the pandemic, said she plans to take a mandatory 1.5 hour online training course so she is allowed to short sell. At its simplest, the practice involves borrowing a stock and selling it, betting that the price will have gone down by the time you need to buy it back.

“I got into the stock market out of nowhere, without much understanding of it,” said Ms. Chae, whose first purchases included Samsung Electronics Co., Kia Corp. and SK Biopharmaceuticals Co. “I’ll do the training. I’m sure it will help.”

Hana Financial Investment Co. is launching short-selling to retail investors for the first time on Monday and nearly 30 firms are expected to be offering the service by year end, compared with just six in early 2020. Most are making the move without any fanfare, to minimize the risk of a backlash.

Goldman Sachs Group, Inc.’s John Kwon and Tim Moe suggest that worry over short selling may be overblown.

Allowing investors to hedge their risk through the strategy may spur net foreign inflows, according to the pair.

The last two times short selling was restored after a ban, there was initial volatility and declines, but the lost ground was regained after about a month, they wrote in a report in April.

Mr. Hong, the 32-year-old office worker, isn’t taking any chances though.

He recently scanned Korea Exchange’s website, looking for companies that have come into the sights of short sellers, and found that LG Display Co. was among them.

“I cut my LG Display holdings by about half,” he said. “I also sold shares of other companies for profit, just in case.” — Bloomberg

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us and our affiliates. Remember that you can opt-out any time, we hate spam too!



By Jenina P. Ibañez, Reporter PHILIPPINE INDUSTRIES are struggling with higher import costs caused at least in part by global supply chain constraints amid...


ELECTRONICS EXPORTS growth this year could exceed the initial target if supply chain limitations are resolved, the industry group’s top official said. Semiconductor and...


CAR SALES in May increased by more than four times from the same month last year after coming off a low base. A joint...


A SECURITIES and Exchange Commission (SEC) panel revoked the license and slapped a P32-million fine on Venture Securities, Inc. (VSI) and key officers over...


Grid operator says department policy will not eliminate brownouts By Angelica Y. Yang, Reporter THE Department of Energy (DoE) told privately owned National Grid...


STREAMING your favorite hour-long television show is the environmental equivalent of boiling a kettle for six minutes or popping four bags of popcorn in...

You May Also Like


Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...


As a traditionally rigid insurance industry becomes bogged down by antiquated processes and operations, a handful of industry leaders are seeking to shake things...


US President Joseph R. Biden, Jr., will rely on ally countries to supply the bulk of the metals needed to build electric vehicles and focus on...


THE Securities and Exchange Commission (SEC) has warned the public from investing or to stop any investment in a group named Maxxprofit Computer Trading...

Disclaimer:, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.

Your information is secure and your privacy is protected. By opting in you agree to receive emails from us and our affiliates. Remember that you can opt-out any time, we hate spam too!