(Bloomberg) — South Korean stocks declined on Monday, hurt by broader investor concerns over looming US tariffs just as a 17-month long ban on short selling ended.
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The benchmark Kospi Index slid as much as 2.8% in early trading, adding to its losses from last week as markets brace for US President Donald Trump’s reciprocal tariffs that are slated for April 2. While all sectors were in the red, some stocks linked to the electric-vehicles supply chain — that have been targeted by short sellers in the past — underperformed.
The MSCI Asia Pacific Index also fell nearly 2%, with Japan leading regional losses following a selloff in US equities on Friday. Trump said he would consider “secondary tariffs” on Russian oil and those who buy it, if a ceasefire with Ukraine can’t be reached.
Starting Monday, hedge funds and other investors will be allowed to sell borrowed shares for all of the roughly 2,800 companies listed in Seoul. Market watchers have expressed confidence that long-term benefits from the resumption of the popular trading practice — which had been prohibited since November 2023 — will outweigh any near-term volatility.
“The price action today is likely a carry over from Friday’s US price action and tariff news over the weekend,” said Mixo Das, head of Korea & Taiwan equity strategy at JPMorgan Chase & Co. The short-selling resumption isn’t all that negative, he added.
Lifting of the ban is expected to boost overall liquidity and help Korea’s bid to be upgraded to developed status from emerging in MSCI Inc.’s equity gauges, as the index provider has called for improving access for foreign investors.
Kospi has been among the top-performing equity gauges in Asia this year. Still, global funds have largely sat out the rally so far, offloading about $20 billion in Korean stocks since August amid the country’s political turmoil triggered by a short-lived martial law decree.
In enacting the ban in 2023, authorities cited unlawful trades, particularly what they called “rampant” naked short selling, and the need to restore fairness for retail investors. Regulators have since investigated and penalized global banks.
Naked short selling — or the practice of selling shares without borrowing them first — will remain illegal as it had been a key catalyst for the ban. An electronic monitoring system to detect such trades went online Monday.
