A view of the KOSPI market (Image courtesy of Yonhap)
SEOUL, May 5 (Korea Bizwire) — A month after South Korea fully reinstated short selling across all listed stocks, expectations that foreign investors would return to the domestic market have yet to materialize, despite signs of market resilience and easing volatility.
According to data from the Korea Exchange, total short-selling turnover on the KOSPI and KOSDAQ markets between March 31—when the ban was lifted—and May 2 reached approximately 20.36 trillion won ($14 billion), averaging about 848.5 billion won per day.
That marks an 8% increase compared to the daily average of 788.4 billion won in the month preceding the blanket ban imposed in November 2023.
Short-selling activity initially spiked, hitting 1.73 trillion won on the first day of resumption. However, it has since subsided, with daily volumes stabilizing between 600 billion and 700 billion won by the end of April.
“There were concerns that the resumption of short selling after five years would lead to heightened volatility,” said Noh Dong-gil, an analyst at Shinhan Investment Corp. “While short-selling ratios did surge to 15.7% on the KOSPI and 8.5% on the KOSDAQ on day one, the initial overshooting has since calmed.”
Despite fears of downward pressure, South Korea’s equity indices have held steady. The KOSPI edged up slightly from 2,557.98 on March 28 to 2,559.79 on May 2. The KOSDAQ climbed nearly 4%, from 693.76 to 721.86 over the same period.
Short Selling Returns, But Foreign Investors Stay Away (Image created by ChatGPT)
The number of stocks designated as “short-selling overheated”—triggering temporary restrictions—also trended downward. While 43 stocks received the designation on March 31 alone, that number fell to 17 by April 30. With revised, more lenient criteria taking effect this month, the figure is expected to decline further.
Still, short-selling remains heavily concentrated in a handful of sectors. As of April 29, the stocks with the highest short interest ratios were primarily in secondary batteries and semiconductors, including EcoPro BM (3.75%), EcoPro (3.61%), Gemvax (3.25%), Enchem (3.19%), Hana Micron (3.16%), POSCO Future M (2.98%), and SKC (2.77%).
One lingering concern is the lack of a meaningful turnaround in foreign capital flows. Foreign investors accounted for 85.1% of short-selling volume over the past month, compared to 13.7% for institutions and just 1.2% for retail investors.
However, instead of returning, foreign investors offloaded more than 9 trillion won in KOSPI shares in April—their largest net sell-off since the COVID-19-driven market panic in March 2020.
“While Korea’s economy has been relatively weak compared to peers, the intensity of foreign selling appears to have been amplified by the resumption of short selling,” said Kim Soo-yeon, an analyst at Hanwha Investment & Securities.
“That impact has likely now been priced in, and with recent U.S. tariff shocks also digested, we don’t anticipate another wave of large-scale foreign sell-offs in May.”
The market now turns to whether foreign investors will recalibrate their positions in coming weeks, as regulatory clarity and macroeconomic signals unfold.
M. H. Lee (mhlee@koreabizwire.com)
