Analysts expected a partial lifting of South Korea’s ban on short selling of large-cap stocks on the Kospi 200 and Kosdaq 150 indexes on Monday will have a limited impact on the market.

The country is set to ease bans on the indexes about 14 months after it imposed the restriction to protect investors from a sudden market fall triggered by the COVID-19 pandemic.

Brushing aside retail investors’ concerns over a possible drop in stock prices, market watchers the equity market is unlikely to face a severe bout of turbulence next week, citing similar cases involving reactivation of short selling in the past.

“Short selling resumption may increase short-term volatility in certain stocks, sectors and even in the overall market. But citing the index movements of the prior resumption cases, the trading strategy itself isn’t likely to change the market’s movements much,” said Han Ji-young, an analyst at Kiwoom Securities.

The financial authorities decided to temporarily ban stock short selling previously during the 2008 global financial crisis and 2011 Europe’s financial crisis. After resuming the activities, however, the local indexes steadily recovered and even moved upward after three months, market data showed.

According to Mirae Asset Securities, the nation’s main bourse Kospi and tech-heavy Kosdaq shed 0.5 percent and 7 percent, respectively, in the month after lifting the shorting ban in May 2009. But within three months, the Kospi rose 14.7 percent and Kosdaq erased some losses to recover to minus 3.4 percent. A week after resuming short selling in November 2011, Kospi and Kosdaq lost 2.7 percent and 2.3 percent but gained 5 percent and 2.3 percent, respectively, after three months as well.

Meanwhile, the balance of securities lending and borrowing hit a yearly high of 56.34 trillion won ($50.4 billion) on Friday. Although the balance has often been considered as a leading indicator to foreign and institutional investors’ short sales, it is hard to say that the local market has downward pressure, market watchers said.

But some analysts, including Mirae Asset’s Yoo Myoung-gan, warned investors to be aware of firms and sectors with high short ratios, adding “those sectors with increased and decreased (short) ratios a month ahead of resumption in 2009 showed huge differences in returns a month later.”

By Jie Ye-eun (yeeun@heraldcorp.com)