NH Investment & Securities noted on the 1st that in the context of increasing short selling balances coinciding with the resumption of short selling, stocks with a strong tendency for shareholder returns are advantageous. Conversely, stocks that have started converting stock after issuing bonds with warrants (BW) and convertible bonds (CB) are considered the most attractive targets for short selling.
Kim Jong-young from NH Investment & Securities presented such a long-short investment strategy. The long-short strategy refers to simultaneously utilizing a ‘long’ strategy that buys stocks in the market and a ‘short’ strategy that sells stocks.
According to Kim, an analysis of the relationship between the scale of short selling balances at specific points after 2016 and subsequent 60-day performance showed that stocks with a strong shareholder return tendency, including dividend stocks or those engaged in stock buybacks and cancellations, exhibited a positive correlation with increases in short selling balances and relatively favorable return flows thereafter.
Kim stated, 'Regardless of whether short selling balances increase, the shareholder return factors provide sufficient relative revenue (alpha factors)' and added, 'This is because the scale of shareholder returns for listed companies is increasing based on value-up policies, and shareholder protection policies are continuously being implemented.'
Kim explained that stocks that increase in number or those that sell treasury stock are suitable as short positions countering the shareholder return long positions. Stocks that have begun converting BW and CB into shares are representative examples.
The implication that investors convert BW and CB into shares typically occurs when stock prices have risen sufficiently. In such situations, if an overhang (potential sell quantity) emerges, the possibility of stock price decline arises. This makes them suitable targets for short selling investments by borrowing shares from others to place sell orders anticipating price drops. Notably, the face value of BW, CB, and exchangeable bonds (EB) issued in 2023 and 2024 totals 24.8 trillion won.
If it becomes difficult to establish short positions based on individual stocks, Kim said there is a plan to set the KOSPI 200 index itself as a short position. He mentioned, 'The annual average stock supply growth rate for stocks in the KOSPI 200 index is about 2%,' adding that 'it can be used as an index reflecting the overall increase in stock supply in the market.'