News Digest:

South Korea’s Financial Services Commission (FSC) will lift its 17-month short-selling ban next week. This move is expected to boost market liquidity, attract global hedge funds, and support the country’s efforts to upgrade its MSCI status to developed market status.

The decision will reopen South Korea’s $1.7 trillion stock market to hedge funds and investment banks using short-selling strategies. MSCI Inc. has long advocated for better foreign investor access, and analysts believe this step could improve Korea’s chances of shedding its emerging market label.

Several asset managers plan to increase exposure to Korean stocks. Citigroup analysts recently raised their Kospi target by 4%, citing better liquidity and foreign participation.

The short-selling ban, first introduced in November 2023, was aimed at preventing illegal trading activities, particularly naked short selling—the practice of selling shares without borrowing them first. Authorities have since investigated global banks for violations and will introduce an electronic monitoring system alongside the ban’s removal. Naked short selling will remain strictly prohibited.

Before the ban, short selling accounted for 5% of Kospi turnover in 2023. Market participants now expect improved corporate governance and increased shareholder returns under the government’s “Value-Up” initiative.

As short sellers return, some high-profile stocks could see volatility. Samsung Electronics, along with battery makers Samsung SDI, Ecopro, and Posco Future M, are expected to be prime short-selling targets. However, Goldman Sachs warns of potential short squeezes if investors react defensively.

End Notes

Source: https://www.hedgeweek.com/south-koreas-short-selling-resumption-expected-to-attract-global-hedge-funds/