SEOUL / HONG KONG Jan 27 (Reuters) – South Korean mom-and-pop investors who have secured a $ 63 billion loan to bet on a rapidly growing stock will have a major test authorities move to block short-selling capital markets. experts said.
The ban, which has been in place since March to sway markets from the effects of the COVID-19 pandemic, has prompted retail investors to go on a debt-busting purchase binge.
Short selling could resume as early as March 15, the Financial Services Commission revealed on Jan. 12, leaving small investors at risk if stock prices fall, analysts said.
Floods of money from central banks, ultra-low or zero interest rates and the spread of the COVID-19 vaccine have spurred “buy everything”, helping the world’s stocks add a whopping $ 33 trillion in value from their lows in March last year.
“If the ban (short sale) is lifted, it could cause a crash and certainly upset retail investors,” said Hwang Sei-woon, a capital markets researcher at the Capital Market Institute Korea.
“But I think the introduction of a short sale is like a reasonable policy decision because the market has been too hot. It could help make the market better and prevent a major blow. ”
Short sellers sell shares on loan in hopes of buying them back when prices fall and kissing the difference.
The sell-off stock frenzy has pushed South Korea’s benchmark index up 40% in the past half-year, making it the best performing market in the world, but leaving some of analysts concerned that bubbles are appearing.
Retail investors accounted for 67% of the average daily trading volume on the KOSPI core market in 2020.
There were 35.4 million active institutional investment and sales accounts in Korea at the end of 2020, 21% higher than in 2019, according to the Korea Financial Investment Association.
‘PROTECTING INSPECTORS IN DETAILS’
Tight restraints in the real estate market have encouraged unprecedented participation by both institutional investors and selling in stocks.
“This is a fundamental change in the allocation of Korean assets, which has historically been more closely linked to property tenures,” UBS AG Korea’s country chief Byung-il Lim told Reuters.
Investors have amassed a $ 63 billion war fund in cash investments at Korea bankruptcy, the investment association said – more than double what was held, on average, in each for the past two decades. leave, according to a report from Bank of America.
Kim Sung, a 35-year-old physicist in Seoul who was lured into the stock market to run higher yields, hopes authorities will implement measures to protect individual investors after they reapply -Introduction of sales.
“Policymakers need to make changes to protect retail investors as short selling appeared to be an advantage for those funds with a lot of assets that could move the market,” he said.
Sung Tae-yoon, a professor of economics at Yonsei University in Seoul, said the strong performance of the Korean market over the past six months was due to high global currency rates and low interest rates.
“It seems likely that the current stock market sentiment would require too much ongoing liquidity and too much to develop. If it does not, the market would be hit hard once the liquid is gone. ”(Reporting by Heekyong Yang in Seoul and Scott Murdoch in Hong Kong; Further Report by Cynthia Kim and Jihoon Lee; Editing by Sumeet Chatterjee and Kim Coghill)