3 Ways to Avoid the 'Gongmaedo Sonagi' Sell-Off

Limited Impact of Short Selling, but Stock Price Decline Accelerates with Earnings Drop
Recent Changes in Loan Balance Also Important
Utilizing Short Selling Through Stock Price Fluctuations from CB and BW Adjustments

[Asia Economy Reporter Junho Hwang] On the 3rd, securities firms identified key factors to avoid a price drop storm following the resumption of short selling, including the earnings performance of investment stocks, loan balance, and liquidity securing measures.

First, attention should be paid to stocks with notably poor earnings. Since the resumption of short selling does not create a peak but rather accelerates price declines, and given that a strong earnings market is currently unfolding, stocks with weak earnings may face a prolonged period of price decline. Yuanta Securities cited CJ CGV, J Contentree, GKL, and Daewoo Shipbuilding & Marine Engineering as examples. Stocks that had risen due to high earnings expectations but reported actual earnings below market forecasts also require caution. Such stocks include HMM, Kumho Petrochemical, and Osstem Implant.

Stocks with recent high volatility in loan balance may also experience price adjustments upon the resumption of short selling. Since naked short selling is prohibited domestically, loan transactions must precede short selling. Kiwoom Securities identified stocks such as Hanwha Systems, CJ CGV, Kakao, HYBE, and SK Biopharm among those with significant changes in loan balance over the past 20 days that are expected to be affected by the resumption of short selling.

Conversely, stocks whose current short selling loan ratio has significantly decreased compared to before the short selling ban also warrant attention, as influential investors may become active again with the resumption of short selling.

Additionally, there is an opinion that it is necessary to monitor whether the investment stocks issue convertible bonds (CB) or bonds with warrants (BW). Researcher Hanju Bae of Shinhan Financial Investment Research Center stated, "Since short selling has typically been used to hedge against price fluctuations caused by CB or BW issuance, it is important to closely examine the liquidity indicators of companies."