The Korean securities market regulator Financial Services Commission is lifting a three-year ban on short-selling of non-financial stocks, as reported by the Asian Investor today. As the domestic market has been up 9% for the past three months, the FSC thinks this would be an opportune time to end universal short-selling ban. The short-selling ban on financial stocks however has not been lifted. The hedge fund industry has not expressed much opposition yet and seems to agree with the decision insofar. As observed by Asian Investor, a consensus lingers among Korean industry professionals that the short-selling ban on financial stocks should not be lifted yet as the Eurozone woes persists.
It is no wonder why the continuation of such ban makes sense. Korean financial stocks have been reacting quite sensitively to Eurozone developments. The Korea Herald summarized yesterday the performances of domestic financial stocks (Woori down 5.31%, Shinhan down 6.23%, KB Financial down 6.45%), as Italian sovereign bonds yields shot above 7%. In light of such developments, the lifting of the short-selling ban on financial stocks is generally viewed in Korea as untimely. The ban will continue to be effective for 110 financial stocks listed on KOSPI.
At the same time, there are concerns that the lifting of short selling ban on domestic non-financial stocks will add to the volatility of related futures and options contracts for months to come. And some professionals suggest that the universal short-selling bans should continue until uncertainties about the Eurozone and indeed the global outlook see signs of clearing (a day which unfortunately may not arrive anytime too soon). The easing of such short selling ban may be intended to coincide with the new hedge fund “welcoming policy” just put in force in September this year. By way of such “welcoming policy”, the FSC aspires to nurture home-grown hedge funds; the agency now allows individual investment in such funds (a relatively low threshold of USD459,000) and also had eased their borrowing limits (400 from current 300 percent).
The Asian Investor’s report on the lifting of short-selling ban can be accessed here.
Korea Herald’s summary of financial stock performance (Nov 10) can be accessed here.
Reuter’s report on the hedge fund “welcoming-policy” can be accessed here.