Since the full resumption of short selling on March 31 this year, the average profit rate for short selling investors has been about 2%. Considering that the KOSPI and KOSDAQ indices fell by about 9% and 7%, respectively, compared to before the resumption, the relative profit rate was not high.
This appears largely influenced by short selling investors miscalculating their targets. Many of the significantly surging stocks recently are political theme stocks, and short selling investors either did not know the stocks were political theme stocks or underestimated the firepower of individual investors, hastily engaging in short selling and cutting down their profit rate.
According to the Korea Exchange on the 10th, from the lifting of the short selling ban on the 31st of last month to the 8th, there were a total of 831 stocks in the KOSPI and KOSDAQ markets that had short selling transactions. Comparing the average short selling price of these stocks (transaction volume ÷ trade amount) with the closing price on the 8th shows that the closing price was on average 2.2% lower.
For short selling investors, the lower the stock price is compared to the average short selling price after selling borrowed stocks and repurchasing shares, the greater the revenue yield. Of the 831 stocks, roughly 604 stocks (72.7%) are estimated to be in a profit zone for short selling investors. Nevertheless, the average profit rate is not large due to the association with political theme stocks.
Pyung Hwa Holdings is a representative case. The average short selling price for Pyung Hwa Holdings is 6,556 won. The closing price on the 8th was 14,160 won. A simple calculation shows that the estimated loss rate reaches 53.7%. This occurred because Pyung Hwa Holdings became associated with Minister Kim Moon-soo, resulting in a surge in its stock price. The stock price of Pyung Hwa Holdings jumped to 2.7 times compared to the closing price of 5,230 won on the 31st of last month.
Stocks with high estimated loss rates from short selling were mostly political and policy theme stocks. Willbes and DAE YOUNG Packaging, which are considered theme stocks associated with Minister Kim, had estimated loss rates of 40.9% and 38.3%, respectively. Other stocks linked to Seoul Mayor Oh Se-hoon's theme, such as Chin Yang Chemical (estimated loss rate: -28.3%) and Chin Yang Industry (-18.7%), as well as Taeyang (-25.2%), associated with former People Power Party representative Han Dong-hoon, and the transfer theme stock Gyeryong Construction (-19.1%), also made it to the top of the list for estimated loss rates from short selling.
However, political theme stocks are mostly those with small market capitalizations, so the scale of short selling transactions is also small. This implies that the impact on short selling investors is not significant. In contrast, large-scale short selling transactions such as SK hynix and Samsung Electronics showed average profit rates of 11.5% and 5%, respectively.
There is still time. Short selling investors must repay the borrowed stocks within 90 days; however, due to the nature of political theme stocks, it is common for stock prices to collapse sharply after elections. The decline in the stock price of Pyung Hwa Holdings after Minister Kim Moon-soo announced his candidacy for the presidential election the previous day is in line with this context. The voting day for the 21st presidential election will be June 3.