South Korea’s stock traders vow war if short sellers end rally

Retail traders who drove record gains in South Korean stocks during the darkest days of the pandemic are bracing for a new threat – the return of institutional players betting on share-price declines.

The world’s longest ban on short-selling stocks came to an end on Monday. Stocks fluctuated between gains and losses. Nevertheless, the end of the ban has individual investors scrambling for strategies to protect their portfolios.

“I agree in theory that we need short-selling because it reduces bubbles and helps the market find the right price of assets,” said Hong Seung-jae, a 32-year-old office worker who gets his trading tips from YouTube and the internet during his 40-minute commute to work on the Seoul subway. “But individuals are at a huge disadvantage given the amount of information and deep pockets institutions have.”

Korea is the last key market with a prohibition on short selling and is allowing the practice again after the economy bounced back to its pre-pandemic peak last quarter.

The resumption is also coming at a time when the Kospi Index is near a record high, having climbed about 10 per cent this year, after surging by almost a third in 2020 in the best performance among major world indexes. And the resumption is accompanied with heavy penalties for wrongdoing, including jail for anyone who sells shares they haven’t actually borrowed.