South Korea's Stock Market Trading Halved
Short Selling Concentrated on Top Market Cap Stocks
[Asia Economy Reporter Junho Hwang] As the United States maintains a high-intensity tightening stance, downward pressure on the South Korean stock market has increased, resulting in the average daily trading value of the KOSPI last month dropping to half of last year's level. With the trading cliff causing stock prices to plummet, short selling has surged significantly, particularly concentrated in top market capitalization stocks such as Samsung Electronics and LG Energy Solution.
According to the Korea Exchange on the 3rd, the average daily trading value of the KOSPI market last month was 7.6956 trillion KRW, a 45.27% decrease compared to 14.0614 trillion KRW in the same month last year. It shrank from 11.2827 trillion KRW in January this year to the 10 trillion KRW range in April, 9 trillion KRW range in May, 8 trillion KRW range in June, and 7 trillion KRW range in July. The KOSDAQ market showed a similar trend. The average daily trading value of the KOSDAQ market last month was 6.1964 trillion KRW, down 43.09% compared to the same month last year.
Last month, as the U.S. Federal Reserve implemented a giant step (a 0.75 percentage point increase in the benchmark interest rate at once) and major central banks around the world pursued tightening policies, the South Korean stock market froze. The strongest burden on the stock market was foreign investors selling off due to the strong dollar. The won-dollar exchange rate surpassed 1,440 KRW on the 28th of last month, marking the highest level in 13 years and 6 months.
With the downward trend in the stock market becoming established, short selling trading value increased significantly. From the 1st to the 30th of last month, the average daily short selling trading value in the KOSPI market was 490.6 billion KRW, about a 40% increase compared to the previous month. Short selling is a trading technique where stocks are borrowed and sold, betting on a decline in stock prices.
During the bear market rally in July and August, the daily short selling trading value remained mostly in the 300 to 400 billion KRW range, but last month it exceeded 600 billion KRW three times: 678.3 billion KRW on the 1st, 685.7 billion KRW on the 16th, and 615.4 billion KRW on the 28th. The average daily short selling trading value in the KOSDAQ market last month was also 134.9 billion KRW, an increase of about 8.8% compared to the previous month.
The short selling trading value was concentrated in top market capitalization stocks. Samsung Electronics (557.5 billion KRW), LG Energy Solution (534.4 billion KRW), and SK Hynix (358.5 billion KRW), ranked first to third in domestic stock market capitalization, were also ranked among the top three in short selling trading value. During the same period, the stock prices of these companies fell by Samsung Electronics -9.54%, LG Energy Solution -11.42%, and SK Hynix -11.50%.
Meanwhile, financial authorities are preparing to reactivate the Securities Market Stabilization Fund (Securities Stabilization Fund) and appear to be considering a full ban on short selling in the event of sudden market fluctuations. On the 30th of last month, Financial Services Commission Chairman Kim Joo-hyun, when asked about abolishing short selling, said, "We are continuously discussing with experts what can be done to stabilize the market."
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