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S. Korea to monitor market volatility sparked by investors' herd behavior

Economy 11:09 February 02, 2021

SEOUL, Feb. 2 (Yonhap) -- South Korea will closely monitor a potential increase in market volatility as investors' herd behavior, illustrated in the U.S. GameStop case, could frequently occur, the vice finance minister said Tuesday.

Global stock markets recently underwent high fluctuations after retail investors snapped up shares of U.S. video game vendor GameStop, on which hedge funds took heavy short positions.

The social media-driven buying spree incurred heavy losses for such hedge funds, and share prices of GameStop skyrocketed as hedge funds frantically scooped up the stock to close their positions.

This photo, provided by AP on Dec. 28, 2020, shows a store of U.S. video game vendor GameStop in New York. (PHOTO NOT FOR SALE) (Yonhap)

First Vice Finance Minister Kim Yong-beom said the GameStop case was an example of market participants' herd behavior amplifying market volatility.

"As herd behavior like that in the GameStop case could frequently occur in a digitalized trading environment where multiple market participants easily access information, we will closely monitor its fallout," Kim said in a meeting on macroeconomic situations.

In South Korea, retail stock investors with limited leverage are demanding an outright ban on short selling, claiming that the trading tactics create a playing filed tilted in favor of offshore and institutional investors.

Stock short selling is a trading technique in which investors sell stocks they borrowed on the belief that share prices will fall in the near future. The more stock prices fall, the more profit they get.

In September, the Financial Services Commission extended a temporary ban on stock short selling for another six months until March 15 this year, in a move to ease market jitters over the COVID-19 pandemic.

Members of the Korea Stockholders Alliance, an advocate group of retail investors, said Sunday it will stage a "Kstreetbets" movement against short sellers in a similar manner shown in retail investors' battle against Wall Street.

The group said retail investors will join hands to buy heavily shorted stocks, including pharmaceutical firm Celltrion, if the regulator resumes short selling as scheduled in March.

Shares of Celltrion were trading at 360,400 won (US$323) as of 11 a.m., down 1.89 percent from the previous session. Its stock prices spiked 14.51 percent on Monday.

This photo, taken on Feb. 1, 2021, shows a bus run by an advocate group of retail investors with a message that reads "I hate short selling," as its members are demanding an outright ban on short selling. (Yonhap)

sooyeon@yna.co.kr
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