[Good Morning Stock Market] "Short Selling Ban, a Boon for the Domestic Stock Market?"... KOSPI Expected to Start Higher

[Image source=Yonhap News]

The domestic stock market is expected to start higher on the 6th. This follows last week’s rise in the New York stock market, which closed higher due to easing employment overheating and a sharp drop in government bond yields. Meanwhile, the government’s ban on short selling until the first half of next year, announced on the 5th, is expected to have a positive impact on the market.

On the 3rd (local time) at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 34,061.32, up 222.24 points (0.66%) from the previous session. The large-cap-focused S&P 500 index rose 40.56 points (0.94%) to close at 4,358.34, and the tech-heavy Nasdaq index ended the day at 13,478.28, up 184.09 points (1.38%).

Earlier, the U.S. Department of Labor reported that nonfarm payrolls in the U.S. increased by 150,000 in October compared to the previous month. The unemployment rate rose by 0.1 percentage points to 3.9%. The job growth fell short of market expectations, strengthening the view that the Federal Reserve’s (Fed) rate hikes have effectively ended. This led to a sharp decline in bond yields. Additionally, the labor market heat is gradually cooling without triggering mass layoffs, supporting the outlook that the economy is moving toward a 'Goldilocks' state.

Kim Seok-hwan, a researcher at Mirae Asset Research Institute, explained, "The U.S. stock market closed higher on the back of the October employment report and slowing services PMI, easing concerns about further Fed tightening and increasing downward pressure on the front end of Treasury yields."

The rise in the U.S. stock market is also expected to be a positive factor for the Korean stock market. The KOSPI is forecasted to start up by 0.5 to 0.8% on the day. However, economic uncertainties are expected to limit the extent of the gains. Researcher Kim said, "With the decline in U.S. Treasury yields and the dollar index, a favorable stock market atmosphere will continue, but ongoing economic uncertainties are likely to cap the upside."

In particular, the government’s sudden ban on short selling until the first half of next year is being positively evaluated. Han Ji-young, a researcher at Kiwoom Securities, said, "There have been three previous cases of short selling bans in the domestic stock market: during the 2008 global financial crisis, the 2011 European debt crisis, and the 2020 COVID-19 pandemic. In these instances, the ban helped stop the market’s decline and led to a rebound."

Yang Hae-jung, a researcher at DS Investment & Securities, also explained, "Risk factors are easing at this time, and after the Fed’s decision, real interest rates and the value of the dollar have fallen, creating a favorable environment for risk assets. Although indicators and earnings are slow, they are improving, and valuations are in a buying range. We believe this will support stock price gains through the end of the year."

However, the ban may have negative effects on the advancement of the domestic stock market. One researcher said, "The domestic stock market is aiming for inclusion in the MSCI Developed Markets Index. MSCI classifies developed markets based on ▲economic development level ▲market capitalization and liquidity ▲market accessibility." He added, "There will likely be controversy over how the short selling ban affects market accessibility."