"Prepare for the Unprecedented Wave of Counter-Buying"

[Asia Economy Reporter Junho Hwang] Following China, and with the US stock market confirming its bottom and showing signs of rebound, only the Korean stock market is experiencing a larger decline. QuantK Research Center identified "short selling" as one of the main causes of this decline in its domestic market review report and urged authorities to "put their heads together and make decisions for a healthy capital market" on the 26th.

QuantK expects that, like other advanced countries' stock markets, the rebound period in Korea will soon arrive when looking at foreign investors' derivative positions. However, unlike other countries, the short selling risk is expanding.

Since the resumption of short selling in May 2021, the amount of short selling has steadily increased, with the average short selling balance in the KOSPI market reaching 12.5 trillion KRW as of May this year. This accounts for about 59% of the average monthly trading volume. As of the 11th trading day this month, approximately 11.5 trillion KRW worth of short selling has been conducted, representing 57% of the total trading volume.

QuantK analyzed, "Now, stocks included in KOSPI 200 and KOSDAQ 150, where short selling is possible, have become a negative factor rather than a positive one for shareholders."

In particular, they emphasized, "With the stock market plunging day after day and individual investors' fear reaching its peak, short selling, which increases volatility by more than 5-10% daily, is utterly harmful," adding, "Among various derivative products that harm individual investors on a tilted playing field, short selling forces linked to option volatility should disappear."

QuantK's response strategy under this approach is to "select and focus on sectors and companies that will rise the fastest when the index rebounds." Since a return to normalcy and index rise could lead to an unprecedented influx of "contrarian buying," especially in stocks with high short selling and loan balances that have been excessively oversold, it is necessary to pay close attention to such stocks.

QuantK also identified stocks with concentrated short selling over the past 10 trading days, including Meritz Financial Group (26.99%), LG Energy Solution (23.66%), K Car (22.11%), and HMM (20.13%). On the KOSDAQ, short selling was concentrated in Golfzon (22.76%), UniTest (18.44%), and Wonik IPS (16.22%).