Effect of Short Selling Ban?
As expectations for a stock market rebound rise due to the complete ban on short selling, there is an increase in related funds in the market. With investor deposits recovering to 50 trillion won in just two months, there also seems a surge in the balance of margin loans.
According to the Korea Financial Investment Association (KOFIA) on Dec. 11, investor deposits recovered to 50.58 trillion won (US$38.29 billion) as of Dec. 7, reaching the 50 trillion won level for the first time in two months since Oct. 5 with 50.49 trillion won. Investor deposits represent funds entrusted by investors to securities firms and others for the purpose of purchasing stocks, characterized by their nature as readily available funds that can be invested in the stock market at any time.
As of early October, investor deposits, which had surpassed 50 trillion won, experienced a subsequent decline, falling to 44.68 trillion won on Nov. 3. However, it has once again turned into an increasing trend, with an increase of approximately 6 trillion won just one month since the implementation of the complete ban on short selling on Nov. 6.
Analysts suggest that the expectation of a market rebound, particularly centered around secondary battery stocks that have experienced repeated declines following the ban on short selling, is materializing as an influx of funds into the stock market.
Furthermore, the positive sentiment is further fueled by expectations of a “Santa Rally,” where stock prices typically rise in the year-end and early-year period due to increased consumer spending from year-end corporate bonus payouts and improved corporate profits. This effect is contributing to a positive shift in investor sentiment.
In addition, the fact that concerns about foreign investors’ withdrawal, which were raised due to the ban on short selling, have been almost non-existent, has also become a positive factor. According to the Korea Exchange, foreign investors have been net buyers in the domestic stock market, with a net purchase amount of approximately 4.19 trillion won for about a month from Nov. 6 to Dec. 8, dispelling initial concerns and boosting expectations for a market rebound.
The balance of margin loans, also known as “debt-driven investment,” is also showing signs of growth. According to KOFIA, the balance of credit trading loans stood at 17.34 trillion won as of Dec. 7, showing an increase of around 700 billion won since Nov. 3, which had a balance of 16.62 trillion won before the ban on short selling.
The balance, which was in the 20 trillion won range from August to the end of September, continued to decrease afterward, falling to 16.97 trillion won on Oct. 31, but has since shown signs of recovery.
The debt-driven investment, which has been decreasing due to the prolonged period of high interest rates, has not seen a significant increase yet. However, there are expectations that the upward trend may gain momentum if there are signals of the end of interest rate hikes and a reduction starts next year.
A representative from the financial investment industry stated, “Although the ban on short selling is temporary and expected to last until the first half of next year, the anticipation of a market rebound during this period appears to be leading to an increase in investor deposits. The interest rates on margin loans offered by securities firms remain high. If interest rate reductions become more pronounced from next year, there is a possibility that the debt-driven investment could see growth again as interest rates decline.”