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SEOUL: South Korea shares fell to the lowest level in nearly two months on Monday in the first day of trading after it fully lifted a five-year ban on short-selling that has hindered its inclusion in MSCI's developed market index.
The benchmark KOSPI traded down 2.2% as of 0130 GMT on Monday, after falling as much as 2.8% to hit its lowest intraday level since February 4.
The short-selling ban had been in place since March 2020, either partly on large-cap stocks or across the market. It was criticised by foreign investors at a time when South Korea has been looking to erase the so-called "Korea discount", where local companies tend to trade at lower valuations than global peers.
The won fell as much as 0.16% to 1,472.2 per dollar on Monday, its weakest level since February 3, as foreigners sold local shares.
Among major South Korean heavyweights, battery makers led the losses on the benchmark index, with LG Energy Solution down 6% and Samsung SDI down 5%, while chipmakers, automakers and e-commerce firms also fell more than 2%.
"There were times when stocks fell on the day of a ban being lifted, but they still rose over a longer timeframe of one to three months," said Huh Jae-hwan, an analyst at Eugene Investment Securities.
"There is a high possibility of more active participation by foreign investors in the market," Huh said.
'KOREA DISCOUNT'
South Korea in recent years has sought to resolve the "Korea discount" with measures to improve foreign access and a push for corporate governance reforms.
That push, however, was undermined when the administration of now-impeached President Yoon Suk Yeol suddenly reimposed a market-wide short-selling ban in November 2023, citing the need to root out illegal trades by foreign investment banks.
The stock market of Asia's fourth-largest economy is currently categorised as an emerging market by Morgan Stanley Capital International (MSCI), whereas its bond market won inclusion in FTSE Russell's World Government Bond Index last year.
Since the second half of 2024, South Korea has opened up the foreign exchange market to overseas participation with extended trading hours to make its financial markets more accessible to foreigners.
In its annual market accessibility report last year, MSCI said it "may only adjust market accessibility ratings once the introduced measures are fully implemented and tested by international institutional investors". It cited the 2023 short-selling ban as a deterioration.
MSCI did not respond immediately to a request for comment on Monday. - Reuters
