Taiwan has decided to temporarily strengthen short-selling restrictions in response to the tariff war initiated by the Donald Trump administration. In contrast, South Korea has faced criticism for resuming short-selling amid the anticipated tariff war, which has contributed to a decline in stock prices. Experts noted that while the shock from the U.S. comprehensive inter-tariff imposition was significant, the impact of short-selling was relatively minor, but they expressed disappointment regarding the timing of the resumption of short-selling.
The Taiwan Financial Supervisory Commission announced on the 6th that "the tariff war is bound to bring uncertainty to the stability of the Taiwanese capital market," stating that it will implement temporary measures to restrict short-selling until the 11th. As the possibility of additional measures remains open, there could be a ban on short-selling should the situation prolong.
With this measure, Taiwan will limit the number of stocks that can be short-sold and raise the minimum margin ratio from 90% to 130%. This aims to curb the effects of the tariff war and the decline in stock prices caused by short-selling.
Lee Jun-seo, a professor of business administration at Dongguk University and president of the Korean Securities Association, stated, "Short-selling helps stabilize the market in normal conditions, but when the market overreacts to external factors, its effect is significant in pushing stock prices down." He assessed that proactively responding to prevent short-selling, as Taiwan has done, has more advantages than disadvantages.
Coincidentally, South Korea resumed short-selling on the 31st, just as the Trump administration's mutual tariff imposition was anticipated. According to the Korea Exchange, the domestic short-selling transaction amount reached 6.06 trillion won after the resumption on the 31st until the 7th. Institutions and foreign investors led the short-selling, trading 677.3 billion won and 5.33 trillion won, respectively.
The financial authorities expected that the resumption of short-selling would draw in foreign funds; however, the impacts of the tariff war were too strong. In fact, on the 7th, the KOSPI index and KOSDAQ index fell by 5.57% and 5.25%, respectively, compared to the previous trading day. During this period, foreign investors recorded a net sell-off of 6 trillion won, including short-selling. The anticipated effects of short-selling did not materialize.
Nah Jung-hwan, a researcher at NH Investment & Securities, explained, "The resumption of short-selling and the increase in short-selling transactions led predominantly by foreign investors acted as factors enlarging the decline in stock prices," adding, "In fact, the short-selling balance in the KOSPI index surged sharply, and an average of 24.7% of foreign sell transaction amounts was seen in short-selling."
Given the situation, some investors are raising voices advocating for a temporary ban on short-selling again. South Korea previously banned short-selling during the global financial crisis originating from the U.S. in 2008 and the European financial crisis in 2011. In 2008, even after the ban on short-selling, stock prices continued to fall, beginning to rebound in early 2009. In 2011, the stock market rebounded about a month after the ban on short-selling.