South Korea’s regulators have again slapped a full ban on hedge funds and other short sellers from selling borrowed stocks, just months before the country goes to the polls in a general election, according to a report by Bloomberg.
The move may well please local retail investors who have repeatedly protested about the impact of short-selling on the nation’s $1.7tn equity market, but global hedge funds and banks are concerned abut the impact the ban will have on the country’s standing in the global financial world.
The report quotes Wongmo Kang, an analyst at Exome Asset Management, as saying that, “There is a possibility that international investors may lose trust and opportunities in the Korean market. Without the ability for investors to express a view that markets and individual stocks are ‘mispriced’ to the upside, stock markets lose long-term credibility on the world stage.”
Korea’s Financial Services Commission’s has banned new short-selling positions on stocks in the Kospi 200 Index and Kosdaq 150 Index until the end of June 2024, after last year indicating that it was ready to consider the complete resumption of short-selling practices “in 2023” to allow greater access to foreign funds and help Korea get an upgrade to developed-market status in MSCI Inc’s indexes.
“Banning short-selling is like removing a lighthouse during a storm,” said Kher Sheng Lee, Asia-Pacific, co-head of the Alternative Investment Management Association. “It not only strips the market of its vital pricing signals but also dries up liquidity – the very lifeblood of trading. Such bans should be a last resort.”