South Korean stocks soared after the country reimposed a full ban on short-selling, a controversial move that regulators said was needed to stop the illegal use of a trading tactic deployed regularly by hedge funds and other investors around the world.
“This policy reversal with respect to short selling is unwarranted at the current time,” said Wongmo Kang, an analyst at Exome Asset Management. “Many people view it as a political move aimed at next year’s general election,” he said, adding that the Korean market tends to be “heavily influenced by retail investors.”
Sunday’s announcement comes just days after the financial watchdog said it plans a comprehensive probe into short-selling trades by global investment banks, with a view to root out the practice of naked short-selling, which is illegal in South Korea. Earlier in October, the FSS proposed the imposition of record fines on two global banks for “routinely and intentionally” engaging in naked short-selling.