Amid a financial turmoil triggered by trade wars, South Korea is one step closer to banning short selling of stocks, officials said on Aug. 7.

Financial Services Commission Chairman Choi Jong-ku announced the plans after an emergency meeting of top financial policymakers including the head of the Bank of Korea and Finance Minister Hong Nam-ki.

“Measures to limit short selling have already been reviewed thoroughly and will be implemented any time,” Choi said, without specifying exact schedules. 

Yonhap

Financial Minister Hong also vowed to take bold and swift steps through all available measures such easing regulations on buybacks and restricting short selling at a suitable time.

Kim Byung-wook, a lawmaker, said on Aug. 7 that “due to the slowdown in global economy, trade row between the US and China, exchange rates, and Japan’s economic provocation, stock markets are under pressure recently.”

Under these circumstances, restricting short selling even for a short period of time would help revive investor sentiment,” Kim added.

Han Dae-hoon, an analyst at SK Securities, agreed saying that halting short selling would help improve investors’ morale -- especially on Kosdaq, which plunged below 600 points.

“In 2008, foreigners turned net buyers when shorting was prohibited,” Han said.

Foreign investors who were net buyers of Korean stocks in June have been net sellers for the past five consecutive days.

Short selling occurs when investors buy stocks with the expectation that prices will fall in the future. When they actually do, they buy it back at a cheaper price to make a profit.

Short selling was banned from October 2008 to June 2009 for nonfinancial stocks in the midst of the global financial.

The ban was once again imposed from August 2011 to November 2011 following the credit rating cut of the US.

Short selling of financial stocks was lifted only in November 2013.

Korea’s stock market plunged this week, with primary Kospi falling for six consecutive days to 1,909.71 points on Aug. 7. After plunging for four straight trading sessions, it recovered on Aug. 7, rising 2.38 points to close at 564.64 points.

By Park Ga-young (gypark@heraldcorp.com)