Korea’s ban on short selling is leading the rally in Asian stock markets, with the KOSPI soaring nearly 3%. However, Bloomberg News reported on the 6th that the ban on short selling will only reduce market transparency and the attractiveness of the Korean stock market.
The day before, Korea’s financial authorities banned short selling until June next year.
Bloomberg pointed out that it is very unusual to ban short selling even though it is not an emergency situation such as a financial crisis or COVID-19.
Bloomberg analyzed that Korea’s ban on short selling was politically motivated. This measure comes ahead of the general election to be held in April next year.
Previously, ruling party lawmakers had urged the government to temporarily suspend stock short selling in response to the demands of individual investors who have been protesting against the practice.
Heo Jae-hwan, an analyst at Eugene Investment & Securities, said, “It is very unusual because the authorities completely ban short selling in times when there is no financial crisis.”
Regulators argue that blatant short selling hinders fair price formation and undermines trust, but experts agree that a broad ban on short selling will only have the side effect of hindering market transparency and reducing the attractiveness of the market.
Furthermore, experts believe that this measure is likely to prevent MSCI, a global index provider, from upgrading Korea from an emerging market to a developed market.
Gary Dugan, Chief Investment Officer (CIO) of Dala Capital Management, said, “If the short selling ban is implemented, the stock prices of companies with some short selling positions will initially surge, but given the low proportion of short selling in the overall Korean market, that “The impact will be temporary,” he said.
Source: Donga
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