"With War Erupting and More Declines Expected?" Short Sellers Thrive Amid Market Plunge... KOSPI Short Selling Surges 54% in March

Stock Market Plummets Amid Middle East War, Short Selling Soars
Number of Overheated Short Selling Stocks More Than Triples
Foreign Investors Account for 57%, Institutions 42%

Since the outbreak of war between the United States and Iran, short selling in the domestic stock market has surged by 54%. As the value of short selling transactions has increased, the number of stocks designated as overheated due to excessive short selling has more than tripled.

On the 12th, the KOSPI and KRW/USD exchange rates were displayed in the dealing room of Woori Bank in Jung-gu, Seoul. On that day, the KOSPI closed at 5,583.25, down 26.70 points (0.48%) from the previous session. Photo by Yonhap News

Short Selling Surges as Korean Stock Market Plummets Due to Middle East War

According to the Korea Exchange on March 18, the average daily short selling transaction value on the KOSPI from the beginning of the month through the 16th was 2.0747 trillion won, a 54.3% increase compared to the 1.3440 trillion won recorded in the previous month. During the same period, the KOSDAQ also saw an increase from 402.2 billion won to 530.9 billion won, up 31.9%.

Short selling is an investment technique where investors borrow shares from others and sell them first, then buy them back at a lower price if the stock price falls. Short selling activity tends to increase when investors expect prices to decline in the future.

With the outbreak of war between the United States, Israel, and Iran causing significant volatility in the Korean stock market in early March, investors anticipating further declines have increased their short selling transactions. The KOSPI, at one point this month, plunged as much as 19% from the previous month, reflecting the substantial impact of the conflict. The KOSDAQ also fell as much as 18%, but has since regained much of its losses.

As of March 16, the breakdown of short selling by investor type was: foreign investors at 57.2%, institutional investors at 42.2%, and individual investors at 0.6%. Nearly all short selling transaction value comes from foreign and institutional investors, with individuals accounting for less than 1%.

As of March 16, top short selling targets on the KOSPI included Samsung Electronics at 145.6 billion won, followed by SK Hynix at 78.1 billion won, Hanmi Semiconductor at 75.7 billion won, and Samsung Electro-Mechanics at 65.62 billion won. On the KOSDAQ, the leading stocks were Leeno Industrial at 30.2 billion won and Ecopro at 29.5 billion won.

Number of Overheated Short Selling Stocks More Than Triples

As short selling transactions have increased, the number of stocks designated as overheated has also surged. In January, there were only 15 cases of stocks designated as overheated due to short selling on the KOSPI, and 20 in February. However, by just the 16th of March—which marks only about half of the month—the number had already reached 66. Many of the recently designated overheated stocks are large-cap companies such as POSCO Future M, Hotel Shilla, Hanjin KAL, Industrial Bank of Korea, T'way Air, and Korea Electric Power Corporation.

On the KOSDAQ, the number of overheated short selling designations also surpassed the previous month, rising from 116 in February to 133 as of March 16. This system is intended to prevent abnormal surges in short selling that could trigger sharp declines in stock prices. If a stock is designated as overheated, short selling is restricted the following day.

Given the heightened volatility in the stock market due to the war, the trend of increasing short selling is expected to continue for the time being. As short selling rises, financial authorities have also stepped up efforts to prevent disruptive market activities such as naked short selling.

On March 13, the Financial Supervisory Service convened an emergency meeting at its Yeouido headquarters in Seoul, summoning compliance officers from 21 major securities firms participating in the National Short Selling Centralized Monitoring System (NSDS). Lee Seungwoo, Deputy Governor for Disclosure and Investigation at the Financial Supervisory Service, urged securities firm executives to conduct thorough compliance management, emphasizing, "In a situation where stock market volatility is heightened, rigorous compliance is necessary to prevent illegal short selling such as naked short selling that could undermine market trust."

This content was produced with the assistance of AI translation services.