Seoul: More than 10 trillion won (US$7.2 billion) worth of South Korean stocks remain sold short, data showed Friday, raising concerns among experts that it could add downward pressure on the local stock market.
According to Yonhap News Agency, the latest data from the Korea Exchange (KRX) indicates that the outstanding balance of stocks borrowed for short selling stood at 10.07 trillion won as of Tuesday. This amount marks the second highest so far this year, following the 10.44 trillion won recorded on July 31.
Short selling is an investment strategy involving the sale of borrowed securities with the intent of repurchasing them later at a lower price to repay the loan. Investors engaging in short selling profit from a decline in stock prices.
An increase in the balance of stocks borrowed for short selling suggests there may be more investors anticipating a market downturn. "If the proportion of short selling among total transactions increases, it could add downward pressure on South Korea's stock market and also increase the volatility of individual shares," Lee Sang-hyeon, an analyst from Meritz Securities Co., stated in a report.
Lee, however, noted that the current level of the short selling balance is significantly lower than the one observed in March 2018, when the global economy was unsettled by the U.S.-China trade war. At present, the total value of stocks borrowed for short selling accounts for 0.37 percent of all stocks listed in the Korean stock market, according to the report. In 2018, this figure was twice as high, reaching 0.83 percent.