Market analysts list potential stocks vulnerable to short sale once trade returns


Stocks that could potentially be removed from Korea's large-cap tracking benchmarks and MSIC index could become initial targets for shot selling once the cap hits May following a 14-month ban that started with Big -Cap issuance begins to be lifted.

Selling short enables an investor to take advantage of falling stocks. The practice has been temporarily banned as part of the Covid-19 market since March last year, but is expected to resume on May 3.

Stock short sales are typically made by overseas investors, so market experts believe that stocks that have strong overseas net selling or a sudden surge in borrowing could be short selling targets.

According to Samsung Securities, from June 2017 to March 2020, offshore investors were 65 percent short in the Kospi market and 73 percent in the Kosdaq market. Samsung Securities selected Lotte Tour Development, Doosan Infracore, Hotel Shilla, Hanjin KAL, Samsung Heavy Industries, Toptec, Partron and BH as likely targets.

Some overvalued stocks can also be short sellers' profit opportunities. Kim Min-gyu, an analyst with KB Securities, said stocks that were sharply trimmed in pairs and valued higher than the competition are targets for short selling. The stocks include SK Innovation, SKC, AmorePacific, Meditox, Pearl Abyss, and KG Inicis.

Market analysts are sounding the alarm for companies that offer large volumes of hybrid securities such as convertibles. Convertible bond buyers often sell the common stock of the same issuer to hedge the risk. Hanwha Investment Securities estimates that LG Display has shorted stocks worth up to 563.1 billion won, Hwaseung Enterprise 117.3 billion won, Kiwoom Securities 63.3 billion won, and Lotte Tour Development 57.9 billion won.

Short sales are permitted on stocks included on the Kospi 200 and Kosdaq 150 lists. Korea Exchange, the country's only exchange operator, plans to modify the Kospi 200 and Kosdaq 150 in mid-May so stocks likely to join or leave the index can lead to short selling.

Short sellers could also keep an eye on companies that are expected to be removed from Morgan Stanley Capital International's MSCI index, as the removal would cause stocks to decline for the companies.

Meanwhile, Hana Financial Investment's Lee Kyung-soo predicted that a resumption of short selling would bode well for undervalued stocks. The broker said SK Chemical, Hanjin, Lotte Chemical, Hyundai Glovis, Chong Kun Dang Pharmaceutical, Kiwoom Securities, SNT Motiv and Douzone Bizon could benefit from the return of short sales.

From Kang Bong-jin and Choi Mira


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