Sunday, June 7, 2020
Large-scale Short Covering Anticipated
Short Sellers Likely to Suffer Losses
Large-scale Short Covering Anticipated
  • By Yoon Young-sil
  • April 3, 2020, 11:03
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Market liquidity is giving a boost to the South Korean stock market with an obstacle to a rally removed by a six-month short selling ban.

According to securities companies, investors are flocking to the stock market after the Bank of Korea cut the key rate and the government implemented strict regulations in the housing market. The inflow of individual investors’ money is more than offsetting foreign investors’ continuous selling in the stock market with the former looking forward to a rapid recovery from their experiences.

Short sellers’ concerns are mounting under the circumstances. “They must pay interests for the stocks they borrowed for short selling,” said an industry source, adding, “Their losses are becoming more and more likely with the local stock market showing a bullish movement these days.”

In other words, concerns over short covering are rising as the ongoing rally predicted to result in their losses. It is said that the rally is leading to a higher possibility of losses attributable to interest payment, and they will be left with no choice but to short cover with the short selling ban scheduled to remain effective for more than five months.

Investors are keeping a close eye on stocks with higher short selling ratios as outstanding short selling positions can be regarded as potential purchases.