On the 1st, short selling transactions on a total of 43 stocks were completely prohibited in the KOSDAQ market and the Korea Composite Stock Price Index market for one day. Following the full resumption of short selling transactions the previous day, related transaction volume surged, resulting in a large number of stocks being designated as overheated. Experts noted that while a short-term 'supply shock' occurred in individual sectors, stocks are expected to stabilize based on actual valuations.
After the market closed on March 31, the Korea Exchange classified 14 stocks in the Korea Composite Stock Price Index market and 29 stocks in the KOSDAQ market as overheated. Included among them was SK hynix, which recorded the highest short selling transaction amount (229.8 billion won), as well as HANMI Semiconductor (87.3 billion won), HD Hyundai Electric (44 billion won), HLB (20.8 billion won), and Kakao (19.5 billion won).
The proportion of short selling was mostly in the 20% to 30% range, but MicroDigital and HANSSEM had 60.4% and 43.9%, respectively, with short selling accounting for half of total transactions. If the stock price drops by more than 5% on the day of the designation of overheated stocks, the period of short selling prohibition will be extended.
Most of the overheated stocks came from the semiconductor, battery, chemical, gaming, and pharmaceutical sectors. In the semiconductor sector, SK hynix, HANMI Semiconductor, and Jeju Semiconductor were designated, while SKC, Enchem, and Lake Materials were from the battery and chemical sectors. Gaming and IT companies, including Kakao, NCSOFT, and Wemade Max, as well as pharmaceutical and bio companies like HLB PAHRMA, Sam Chun Dang Pharm, and Nature Cell, were also largely included.
Additionally, holding companies such as SK and LOTTE Corporation, as well as CJ CheilJedang and JYP Entertainment, were noted as overheated stocks.
Although the criteria for designation of overheated stocks were temporarily tightened, some opinions emerged that the short selling supply on the first day was more excessive than expected. This is because the number of designated overheated stocks exceeded the number (41) designated in the one month prior to the prohibition of short selling (October 3, 2023, to November 3, 2023).
Previously, financial authorities pointed out that some individual stocks might experience increased volatility following the resumption of short selling and temporarily tightened the criteria for overheated stocks for two months. Under the existing rules, if the short selling amount doubles on the same day and the proportion of short selling transactions exceeds 30%, or for KOSDAQ if the short selling transaction increase rate is five times higher, the stocks are designated as overheated.
Due to the expanded operation, in April, if the short selling amount doubles on the same day and the short selling transaction proportion exceeds 20%, the criterion will change to exceeding 25% for May. The KOSDAQ short selling transaction increase rate was also adjusted to three times for April and four times for May.
In the securities industry, it was analyzed that as short selling resumed for all stocks, related transactions surged, leading to increased short-term volatility for specific stocks. It is expected that over time, stock price direction will be determined based on actual profit-generating ability and future market outlook; however, the timing is likely to vary by corporation. Companies with solid fundamentals or belonging to growth industries are expected to stabilize relatively quickly after the initial shock.
In the future, it seems crucial to discern the companies and sectors that may become targets for short selling. Lee Kyung-min, a researcher at DAISHIN SECURITIES, said, “For the time being, stocks that have risen due to high valuations or short-term issues may easily become targets of short selling, and the decline could be steep, so caution is advised when investing.”