With the KOSPI surpassing 3,000 points for the first time in history, the extension of the’prohibition of short selling’ is emerging as a key issue for passports. The Financial Services Commission announced on the 11th that “The ban on short selling due to the novel coronavirus infection (Corona 19) currently in effect will end on March 15.”
Financial Services Commission “short selling ban, ended March 15”
Democratic Party “Influences not only the votes but also the stock price”
Severe household debt behind Donghak ants
Procrastination and resumption of bans, cautious increase
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Individual net purchases of the KOSPI market
– Short selling (空賣渡) literally means “selling empty stocks.” It is an investment technique in which an investor who expects the stock price of a specific stock to go down borrows and sells the stock of the stock at a securities company, and then buys and repays the borrowed stock when the actual stock price goes down. It is mainly used by institutions and foreign investors, and has been evaluated as fueling a decline in stock prices by pouring out a large amount of sells in a bearish market.
The ban on short selling, which was enforced temporarily since March 16 last year, has served as a growth plate for domestic stock prices. In the first half of last year, when the stock price fell in the aftermath of Corona 19, the stock price started to rise rapidly due to the ban on short selling. Individual investors called’Donghak ants’ swept domestic stocks at low prices despite fears of falling stock prices.
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Average daily short selling transaction amount
– However, on the 12th, the Democratic Party was busy preparing countermeasures as the Financial Services Commission publicly announced its plan to resume short selling. When short selling, known as a system favorable to institutional investors, resumes, individual investors’ fears of churn also increase. Unfortunately, the resumption of short selling (March 16) is three weeks before the 4/7 re-election. Inside the Democratic Party, “the issue of short selling affects not only the votes but also the stock price. There is also a saying “the same issue as the gunpowder warehouse” (from the political committee).
On this day, the Democratic Party criticized the Financial Services Commission’s announcement the day before, saying that it was “inappropriate”. “It is not a matter of holding a rite on the ceremonial day, but it is a matter of continuing and linking the policy, but it is irresponsible to check the date again” (Democratic Party member Park Yong-jin) pointed out. In particular, there were many opinions that the resumption of short selling should be discussed at the origin.
Democratic Party Supreme Commissioner Yang Hyang-ja said, “This is a problem that many individual investors are worried about.”
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Household debt to GDP ratio. Graphic = Kim Hyun-seo [email protected]
– Of course, there are many voices that the ban on short selling should be extended and resumed. Rep. Kim Byeong-wook, a secretary of the Democratic Party’s political affairs committee, said, “If we conclude that’Donghak ants are not a slanted playground,’ we can resume (short selling) after a cold and objective evaluation of the revision of the law and efforts to improve short selling by the authorities. Otherwise, the ban must be extended.”
The reason that the Democratic Party is particularly struggling with the issue of short selling is that there is a serious household debt problem behind the bull market led by’Donghak ants’. The total household debt in Korea was 100.6% of GDP in the third quarter of last year. This is much higher than the average in the United States (81.2%) or developed countries (78%). In recent years, household debt and investments have also increased rapidly. It means that the money raised by households in debt has flowed to the domestic and overseas stock markets.
An official from the National Assembly’s political affairs committee said, “If there is a bubble in the stock market, it will fall someday, but the impact on households is not small depending on whether it will land softly or hard,” he said. “If you do, the household debt problem can become serious.” A member of the Democratic Party said, “It is also an important question whether household debt can be handled if global interest rates are raised in the future.”
Reporter Oh Hyunseok [email protected]
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