Indebted South Korea retail stock buyers face reality check as short selling to resume

SK Biopharmaceuticals Co

27/01/2021 05:12

By Heekyong Yang and Scott Murdoch
    SEOUL/HONG KONG Jan 27 (Reuters) - South Korean mom-and-pop
investors who have borrowed a record $63 billion to bet on
soaring stocks will face a key test soon as authorities move to
lift a ban on short-selling, capital markets experts said. 
    The ban, which has been in place since March to cushion
markets from the impact of the COVID-19 pandemic, encouraged
retail investors to go on a debt-fuelled buying binge.
    Short selling could resume as soon as March 15, the
Financial Services Commission flagged on Jan. 12, leaving small
investors at risk if share prices tumble, analysts said.
 urn:newsml:reuters.com:*:nL1N2JM2YJ
    A flood of money from central banks, ultra-low or zero
interest rates and COVID-19 vaccine rollouts have sparked a "buy
everything" rally, helping world stocks add a whopping $33
trillion in value from their lows of last March. urn:newsml:reuters.com:*:nL1N2K01NM  
    "If the (short-sell) ban is lifted, it could cause a crash
and definitely upset retail investors," said Hwang Sei-woon, a
capital markets research fellow at the Korea Capital Market
Institute. 
    "But I think reintroducing of short selling seems like a
reasonable policy decision as the market has been too heated. It
could help better stabilize the market and prevent a big hit."
    Short sellers sell borrowed shares in the hope of buying
them back when prices fall and pocketing the difference.
    The retail stock buying frenzy has pushed the South Korean
benchmark index up 40% in the past half year, making it the best
performing market in the world, but leaving some analysts to
worry a bubble is emerging.
    Retail investors accounted for 67% of the average daily
trading volume on the main KOSPI market  .KS11  in 2020.
    There were a record 35.4 million active institutional and
retail investor accounts in Korea as of end-2020, 21% higher
than in 2019, according to the Korea Financial Investment
Association.
    
    'PROTECT RETAIL INVESTORS'
    Tightening restrictions in the property market have prompted
unprecedented participation by both institutional and retail
investors in stocks. urn:newsml:reuters.com:*:nL1N2IP09M
    "This is a fundamental change in Korea's asset allocation,
which historically has been more linked to real estate
holdings," UBS Group AG  UBSG.S  Korea country head Byung-il Lim
told Reuters.
    Investors have amassed a war chest of $63 billion in cash
deposits at Korea's brokerages, the investment association said
-- more than double of what has been held, on average, in each
for the past two decades, according to a Bank of America report.
    Kim Sung, a 35-year old physicist in Seoul who was attracted
to the stock market to chase higher returns, is hoping
authorities would put in place some measures to protect
individual investors after re-introducing short-selling.
    "Policymakers need to come up with an amendment to protect
retail investors as short selling previously seemed to benefit
those funds with a large amount of assets that could sway the
market," he said.
    Sung Tae-yoon, an economics professor at Yonsei University
in Seoul, said the Korean market's strong performance over the
past six months was the result of high global cash levels and
low interest rates.
    "Continuous and excess liquidity would likely be needed to
carry on the current stock market's sentiment. If not, the
market would take a big hit once the liquidity is gone."

 (Reporting by Heekyong Yang in Seoul and Scott Murdoch in Hong
Kong; Additional reporting by Cynthia Kim and Jihoon Lee;
Editing by Sumeet Chatterjee and Kim Coghill)
 ((Scott.Murdoch@thomsonreuters.com;))