On the First Day of Short Selling Ban, Secondary Battery Stocks Surge... "Sustained Uptrend Difficult"

Short Covering Buying Inflow Estimated... Stocks with High Short Selling Balances Mainly Rise
More Affected by Economic Conditions After Past Short Selling Ban... Foreigners May Also Increase Selling in Futures Market

On the first day of the complete ban on short selling, the stock prices of secondary battery companies soared. It is interpreted that short covering buying demand flowed into stocks with large short selling balance amounts. Although a short-term price increase is expected, there is an analysis that the upward trend will be difficult to continue. This is because stock prices are more significantly affected by corporate performance and economic conditions.

According to the Korea Exchange, Ecopro (828,000 KRW), Ecopro BM (299,000 KRW), and POSCO Future M (349,500 KRW) closed at the upper price limit on the 6th. In addition, Ecopro HN (+28.73%), L&F (+25.30%), LG Energy Solution (+22.76%), Samsung SDI (+11.45%), SK Innovation (+13.42%), and LG Chem (+10.62%) also ended trading with sharp rises. In the case of L&F, the operating profit for the third quarter was 14.8 billion KRW, a sharp decline of 85.0% compared to the same period last year, significantly below the forecast (28.2 billion KRW). However, the stock price soared.

The reason why secondary battery stocks surged on that day is largely due to the effect of the 'complete ban on short selling.' It is interpreted that short covering buying demand flowed in to liquidate short selling positions. Short covering refers to repurchasing stocks borrowed for short selling.

Looking at the top stocks by short selling balance amount (as of the 1st), in the KOSPI, POSCO Future M (695.2 billion KRW), POSCO Holdings (610.1 billion KRW), Celltrion (510.5 billion KRW), Amorepacific (218.6 billion KRW), and Kakao Bank (204.7 billion KRW) were ranked in order. In the KOSDAQ, Ecopro (1 trillion KRW), Ecopro BM (968.1 billion KRW), L&F (311.2 billion KRW), HLB (271.8 billion KRW), and Rainbow Robotics (80.7 billion KRW) were listed.

Lee Kyung-min, a researcher at Daishin Securities, explained, "Secondary batteries rose 20.47%, recording the highest increase among industries," adding, "Along with an excessive perception of the price drop, a sharp rise centered on the secondary battery value chain, which had relatively large short selling balances during the index decline, led the index increase."

Na Jung-hwan, a researcher at NH Investment & Securities, said, "Currently, the KOSPI short selling balance is about 11.4 trillion KRW, an increase of about 2 trillion KRW compared to 9.4 trillion KRW at the beginning of the year," and explained, "During the short covering occurrence in May, the KOSPI short selling balance fell back to the beginning of the year level."

This means that in the short term, demand inflow centered on industries with large short selling balances may continue to drive stock price increases. However, there is also an analysis that such an upward trend will be difficult to sustain. A securities firm researcher who requested anonymity said, "Looking at past cases, the stock market moved according to the economy after short selling bans," and added, "This complete ban on short selling was imposed without justification, and since the economic outlook is not good, the upward momentum will weaken."

In particular, there is a view that the shaken trust of foreigners in the domestic capital market will have a greater impact than the short covering demand caused by the complete ban on short selling. Another securities firm official said, "Basically, foreign short selling is mostly a 'reverse momentum short selling' position to dispose of overvalued stocks, so it has a positive function," adding, "Foreigners may expand selling in the futures market instead of hedge short selling."