Finance Minister Choo Kyung-ho stated Tuesday that the ban on short selling stocks was necessary “for now” despite apprehensions about the outflow of foreign capital and a failed attempt to gain a developed market status from Morgan Stanley Capital International (MSCI) Inc.
During a parliamentary finance committee meeting, Choo responded to a question from Rep. Kim Tae-nyeon of the main opposition Democratic Party, who argued that the ban will lead to greater market insecurity and a massive exodus of foreign capital.
“At this point, I concur (with the full ban),” Choo said. “There have been such worries, but some investors and legislators have been concerned about the short selling practice. Let’s observe how the market responds and evaluates.”
A few market watchers have also pointed out that the recent regulation will make it more difficult for South Korea to acquire developed market status in the MSCI indexes.
“It is true that short selling is one of many factors that need to be addressed for the MSCI upgrade. The government will keep reforming steps related to the MSCI status,” Choo said without further detail.
The opposition lawmaker asserted that the administration “made an erroneous decision to win votes before the general elections” in April next year.
Subsequent to the ban, the benchmark Korea Composite Stock Price Index (KOSPI) soared 5.66 percent on Monday, the most significant increase rate since March 2020. However, the index decreased 2.33 percent to 2,443.96 on Tuesday due to heavy selling by institutions and foreign investors.
Short selling involves selling borrowed shares to purchase them back at a lower cost and pocket the difference.
Finance Minister Choo Kyung-ho speaks during a parliamentary financial committee meeting in Seoul on Nov. 7, 2023. (Yonhap)