The domestic stock market moved without direction and fell sharply on the last day during a week (Feb. 24-28). NVIDIA's future earnings forecast did not meet market expectations, and on Feb. 27 (local time), it plummeted by 8.5%. The next day, on the 28th, the KOSPI and KOSDAQ indices also fell by more than 3% in one day. Starting at 2,636.12 points (p) on Feb. 24, the KOSPI index closed at 2,532.78p on the 28th. During this period, the KOSDAQ index started at 776.94p and closed at 743.96p.
The Bank of Korea lowered the base rate, but it did not have much effect on the KOSPI and KOSDAQ indices. Typically, a central bank's interest rate cut is a positive sign for the stock market, as lower interest rates make bank deposits less attractive, leading to increased demand for risky assets like stocks. However, this principle did not apply in the stock market last week.
In the securities industry, advice is being given that it is time to slowly reorganize portfolios ahead of the short-selling that will begin on the 31st. Short-selling refers to the technique of borrowing shares from others to place an order, buying them back when the stock price goes down, and pocketing the profits; since it is based on 'selling,' it drives down stock prices.
Yeom Dong-chan, a researcher at Korea Investment & Securities, noted, "Immediately after the previous three short-selling resumption events (Aug. 10, 2011; Nov. 10, 2011; May 3, 2021), there were selling pressures on sectors with high price-to-book ratios (PBR). He analyzed that stocks with high valuations could be vulnerable right after the resumption of short-selling.
Therefore, it is expected that this week (Mar. 3-7), there could be a surge in selling, particularly for stocks with high PBRs. PBR is an indicator that represents how many times a company's market capitalization exceeds its net worth; a higher number indicates that the price of shares traded in the stock market is high compared to the company's net worth. The higher the PBR, the greater the likelihood that the stock price is overvalued, meaning it could become a target for short-selling.
Among the listed stocks on the KOSDAQ market, stocks with high PBR include SK Biopharm, HD Hyundai Marine Solution, ISU Specialty Chemical, SHIFT UP, and HANMI Semiconductor. In the KOSDAQ market, Green Pine Tree, Alteogen, VUNO, dotmill, and Rainbow Robotics are the top five companies by PBR.
However, it is advised not to overlook corporate performance. Jung Dawn, a researcher at LS SECURITIES, stated, "In the first month after the resumption of short-selling in the past three instances (Aug. 10, 2011; Nov. 10, 2011; May 3, 2021), stocks that faced heavy short-selling tended to experience increased volatility, but the factors determining a stock's price are naturally supply and demand, while more importantly, performance, growth, and the market environment."
Another institutional change this week is the opening of Next Trade, the second Korea Exchange. This system, which the Financial Services Commission has been preparing since 2015, will open after a decade.
Until now, securities firms have been searching for the quantity to be executed at the Korea Exchange after an investor places an order for stocks through the Mobile Trading System (MTS). From April 4, with the launch of Next Trade, securities firms will have to decide whether to send customer orders to the Korea Exchange or to Next Trade.
Next Trade boasts lower fees and faster transaction speeds compared to the Korea Exchange. However, the Korea Exchange also has fairly low fees and quick transaction speeds, making it difficult for investors to perceive a clear advantage in these aspects. The most significant change brought about by the launch of Next Trade is the trading hours.
Until last month, investors were able to trade stocks from 9 a.m. to 3:30 p.m. In the future, from April 4, these hours will be expanded to 8 a.m. to 8 p.m. The Korea Exchange closes at 3:30 p.m., while Next Trade will operate until 8 p.m. If stock orders are placed after 3:30 p.m., they will be executed on Next Trade.
Not all securities firms will offer evening trading. Only Kyobo Securities, DAISHIN SECURITIES, Mirae Asset Securities, Samsung Securities, NH Investment & Securities, LS SECURITIES, Yuanta Securities Korea, Kiwoom Securities, Toss Securities, Hana Securities, Korea Investment & Securities, Hanwha Investment & Securities, and Hyundai Motor Securities will be available for this service. Other securities firms plan to implement evening trading in the future.
Meanwhile, the outlook for the U.S. market is seen as a downward factor for our stock market. The movements of the domestic stock market often align (couple) with those of the U.S.
The clouds hanging over the U.S. economy are largely due to President Donald Trump's erratic tariff policy. Originally, tariffs of 25% were scheduled to be imposed on Mexico and Canada starting from Feb. 4. However, President Trump delayed the timing by one month, promising enhanced border security with the two countries.
On Feb. 26 (local time), President Trump said during his first cabinet meeting after taking office that tariffs on Mexico and Canada would be imposed starting April 2, but he changed his mind a day later. Ultimately, tariffs of 25% will be imposed on Mexico and Canada starting from this month.
Since President Trump's inauguration, the U.S. representative index has shown a downward trend. Over the past month, the technology-heavy Nasdaq index has dropped by 5.52%, while the S&P 500 index has decreased by 2.96%, and the Dow Jones Industrial Average has fallen by 0.45%. Park Sang-hyun, a researcher at iM Securities, stated, "The global preference for countries other than the U.S. might continue until there is a policy shift from President Trump."
Signals that the U.S. economy could weaken are also being detected. On Feb. 27 (local time), the U.S. Department of Labor announced that new unemployment claims for the week (Feb. 16-22) had reached 242,000, an increase of 22,000 from the previous week, marking the highest level so far this year.
While employment is declining, inflation is rising. In January, the U.S. Consumer Price Index (CPI) climbed by 3.0% compared to the previous month. The rate of increase in consumer prices rising back to the 3% range is the first time in seven months since June of last year. Jo Yeon-joo, a researcher at NH Investment & Securities, stated, "As President Trump engages in a tariff war with all countries, the impact on the U.S. economy could be even greater, and economic volatility will likely increase due to uncertainties regarding policy implementation."