[Asia Economy Reporter Lee Seon-ae] After short selling was reinstated only for KOSPI 200 and KOSDAQ 150 index stocks following a hiatus of 1 year and 2 months, there were many concerns about its impact. However, the domestic stock market instead entered a performance-driven phase powered by fundamentals. That said, there was a clear differentiation in stock prices by sector over the past week.
According to the Korea Exchange on the 9th, as of the closing price on the 7th, the combined market capitalization of the KOSPI and KOSDAQ markets was 2,635 trillion won, an increase of 1.26% (33 trillion won) compared to 2,602 trillion won on the 30th of last month, just before the resumption of short selling. During this period, the KOSPI rose by 49.34 points (1.57%) from 3,147.86 to 3,197.20, overwhelmingly outperforming the KOSDAQ’s decline of 0.52% (from 983.45 to 978.30).
Initially, there were concerns that the pent-up demand for short selling, accumulated during the steep market rise over the 1 year and 1 month since the ban in March last year, would flood the market upon resumption, potentially causing a short-term correction. However, once the market opened, it turned out to be more of a 'false alarm.'
In this regard, the market is focusing primarily on the 'power of fundamentals,' namely the earnings of listed companies.
In fact, according to financial information provider Infomax, among 119 listed companies that have announced their Q1 earnings and have consensus earnings forecasts from three or more securities firms, the combined consolidated operating profit for Q1 was 34.7913 trillion won, an 87.0% increase compared to 18.6067 trillion won in the same period last year.
Moreover, this operating profit exceeded the estimated total of 31.6936 trillion won by 9.8%, surpassing even the market’s heightened expectations for strong Q1 earnings. Among these companies, 78 (65.5%) reported operating profits above forecasts, nearly double the 40 companies (34.5%) that did not.
Notably, due to global economic improvement and the recovery of Korean exports, 'earnings surprises' were prominent in cyclical sectors such as chemicals, refining, and shipbuilding.
Seol Tae-hyun, a researcher at DB Financial Investment, stated, "With the full-scale earnings announcements of domestic companies underway, profit forecasts are also rising sharply. The Q1 earnings of companies that recorded earnings surprises due to base effects and one-off factors are being reflected in the annual profit forecasts." He added, "It is difficult for the stock prices of companies expected to improve fundamentals to continue falling due to supply and demand factors. The negative impact of short selling on companies expected to improve earnings is likely to be short-lived."
Meanwhile, sectoral differentiation appeared. According to the Korea Exchange, among the 11 KOSPI 200 sector indices from April 3 to 7, when short selling was partially resumed, the healthcare index fell the most, down 0.64%. The KOSPI 200 healthcare index includes many biotech stocks, which are considered vulnerable to short selling due to their high valuation burdens. However, although this index fell 4.87% on the first day of short selling resumption, April 3, it recovered much of the loss as major stocks like Celltrion rebounded.
Additionally, the heavy industries index, which reflected the sharp stock price drop due to Samsung Heavy Industries’ poor earnings, fell 0.49%, and the information technology index, which includes many growth stocks, also showed weakness, down 0.19%.
On the other hand, stocks in cyclical sectors benefiting from inflation and rising interest rate expectations showed an upward trend. The KOSPI 200 steel and materials index rose 5.07% over four days, marking the largest gain. In particular, POSCO, the leading stock in the index, rose 9.34% during this period. Furthermore, sectors such as finance (3.71%), industrials (3.53%), construction (3.39%), consumer discretionary (3.13%), and energy & chemicals (2.42%) also showed notable strength.
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