Volatile Korean stocks slide as second sidecar curb is activated

Korea’s market closed down 2.3 percent on Tuesday following the sharpest ever daily gains the previous day prompted by the reinstatement of a full ban on short selling of all stocks in the country.

Electronic display boards at Hana Bank in central Seoul show Korea’s market on Tuesday. [NEWS1]

Korea’s market closed down 2.3 percent on Tuesday following the sharpest ever daily gains the previous day prompted by the reinstatement of a full ban on short selling of all stocks in the country.

The Kospi closed down 2.33 percent to 2,443.96 while the tech-heavy Kosdaq closed down 1.80 percent to 824.37. Trading volume totaled 447.6 million shares worth 11.38 trillion won ($8.7 billion).

The market flopped a day after Kospi showed record daily gains with 134.03 points the previous day, driven by strong secondary battery and biopharmaceutical sectors. The index surged 5.66 percent while the Kosdaq soared 7.34 percent on Monday.

The Korea Exchange had to activate a sidecar curb on Kosdaq for the second consecutive day on Tuesday as the market remained volatile.

The sidecar curb was activated at 11:48 a.m. as the Kosdaq 150 Futures plunged 6.46 percent. The tech-heavy index fell as low as 4.01 percent on Tuesday.

The sidecar curb was briefly activated Monday morning, suspending trading for the first time since June 2020.

The sidecar curb, designed to ease volatility in stock markets, is activated when the Kosdaq 150 futures rise or fall more than 6 percent or when the Kosdaq 150 index fluctuates more than 3 percent.

Most blue chip stocks were rattled on Tuesday, including LG Energy Solution which plunged 10.23 percent and its smaller rival Samsung SDI, which plummeted 7.91 percent.

Tech companies also nose-dived, with the No. 2 chipmaker SK hynix decelerating 1.95 percent and home appliance giant LG Electronics closing down 1.8 percent. Market bellwether Samsung Electronics remained unchanged.

The energy sector also tumbled, with LG Chem sliding 5.57 percent and refiner SK Innovation down 7.07 percent.

"It would be difficult to say that the market will continue to rise following the massive rally on Monday because the impacts of the ban on short selling will be diluted eventually," said Kim Jong-yeong, an analyst at IBK Securities.

The local currency ended at 1,307.90 won against the U.S. dollar, down 10.60 won from the previous session’s close.

The market has shown volatility following the full ban on short selling that will be in place through to next June.

The financial authorities said the motive behind the ban was to level the playing field for retail investors and to improve the system after illegal short selling by global investment banks was discovered.

The Financial Supervisory Service (FSS) launched a probe into global investment banks to discover any illegal short sale they may have committed in the country to stop the illegal use of a trading tactic that is regularly deployed by global investors, like hedge funds.

BY JIN MIN-JI [jin.minji@joongang.co.kr]