Shorting on Korean stocks near 11%, highest since 2020's virus-led massive selloffs

Short selling on Korean stocks shot up to the highest ratio last week since the virus-ridden 2020, raising concerns about a further stock market crash later this year amid higher inflation and faster rate hikes.

According to Eugene Investment & Securities and Korea Exchange on Tuesday, shorting on Kospi 200 stocks took up 10.79 percent of the total stock trade for five trading sessions as of Oct. 14. The ratio has hovered above 10 percent – 10.47 percent on Oct. 12 and 10.99 percent on Oct. 13 – amid growing market volatility from the aggressive global monetary tightening and rising recession fears.

Shorting exceeded 10 percent for the first time since the ratio reached 10.58 percent on Mar. 12, 2020 when the onset of the Covid-19 pandemic. It peaked at 12.59 percent on June 5, 2019 amidst the trade war between Washington and Beijing and then rose to the level of 11 percent in February and March 2020 in the early stage of the Covid-19 pandemic.

Average daily short selling transaction value of Korean stocks this month reached 570 billion won ($401 million) as of Oct. 19, adding 15.5 percent from a month-ago period.

Analysts voice concerns that investor sentiment would turn sour further later this year as the higher shorting generally signals a market rout ahead.

Kospi plunged to 2,040 from 2,200 in May 2019 and then to 1,439 in March 2020. On top of that, central banks are expected to maintain the current tightening stance for a while.

“One thing that is certain about the rapid rise in short sale is that the stock market is heading for another tumble, and we couldn’t expect actions like rate cuts in August, September and November in 2019 on deflation concerns,” said Kang Song-cheol, an analyst at Eugene Investment & Securities.

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