S. Korean financial firms vulnerable to security breaches: regulator

Stock short-selling turnover tops 5-year high

Stock short-selling turnover tops 5-year high

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Published : 2013-12-20 20:30
Updated : 2013-12-20 20:30

Stock short-selling turnover on the country’s main bourse topped a five-year high this month, largely due to uncertainties over the timing of the U.S. Federal Reserve’s stimulus cut, data showed Friday.

The data compiled by market researcher FNGuide showed that short-selling turnover accounted for 2.01 percent of the combined trading volume on the main bourse in the first 20 days of the month, the highest portion since August 2008 on a monthly basis.

Stock short-selling refers to a trading technique through which investors sell stocks they borrowed on the belief that the share prices will fall in the near future. When the prices fall, they can buy back the stocks at lower prices, pocket the profit and return the shares to the original owner. Increased short-selling typically indicates that many investors anticipate a fall in share prices down the road.

“Investors might have adopted the short-selling technique because of market uncertainties over an early tapering of the Fed’s stimulus step,” said Kang Hyun-ki, an analyst at IM Investment & Securities.

The Fed announced on Wednesday that it would begin reducing its bond purchases by $10 billion per month starting in January, citing a stronger job market. The Fed has operated an $85 billion monthly bond-buying program in a bid to boost the U.S. economy by keeping interest rates low.

Some analysts pointed out short-selling mainly centered around specific shares and sectors deemed to be overvalued, thus raising its portion against the overall stock turnover.

The machinery sector had the highest short-selling turnover rate of 9.86 percent, and the comparable figures for the securities, logistics segments were 7.23 percent and 3.9 percent, respectively, according to the data.

In 2008, in the midst of an unprecedented global financial crisis caused by the collapse of Lehman Brothers, South Korea’s financial regulator imposed a temporary ban on short-selling in an effort to prevent the trading practice from battering the local

bourse. The restriction was lifted for non-financial stocks in June 2009, and for financial shares in November this year. (Yonhap News)

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