Saber-rattling from North Korea and the United States have sent chills to the Korean stock market, pushing the composite index sharply lower and securities loans to all-time high to suggest that much of funds postured for short selling.

The main Korean Composite Stock Price Index (KOSPI) closed Monday 0.9 percent at 2,133.32 upon news that the U.S. Navy strike group Carl Vinson with guided-missile cruisers and destroyers was heading toward the Korean Peninsula after U.S. President Donald Trump and his aides publicly spoke of a preemptive strike on North Korea following an airstrike on Syria. North Korea also upped its saber-rattling and is believed to be readying long-range rocket launch or nuclear test timed with April 15 birthday of North Korean founder Kim Il-sung. The secondary Kosdaq index fell by more than 2 percent.

At 2:00 p.m. Tuesday in Seoul trading, the Kospi is down 0.5 percent at 2,123.16 and Kosdaq 0.03 percent down at 619.2.

Further weighing down the market is the amount of reserves for short sales.

According to Korea Financial Investment Association, the nation’s securities lending balance reached a record high of 68 trillion won ($59 billion) on Friday. The securities lending is often used in short selling for the purpose of selling the shares for a profit, betting on a further slide in the stock price.

The lendable value of securities in Korea has been rising due to gains in the main index last month. It topped 60 trillion won threshold for the first time ever on March 3 and added 8 trillion won more in a month. The balance surged 41 percent this year.

The short selling has been on a rise, especially among the shares listed on the Kospi 200 index that is mainly composed of large-cap stocks. The rate of short-sold stocks on Kospi 200 exceeded a historic high of 13 percent.

Offshore investors who maintained a strong net buying trend until last month shifted to net selling position this month. Although Americans net purchased 3.9 trillion won worth local stocks last month, European and Middle Eastern investors, who have kept up selling spree since the beginning of this year, unloaded 519.0 billion won worth and 479.0 billion won worth, respectively.

British investors sold the largest amount of local shares worth 982.0 billion won last month. The net selling by British investors over the last three months amounted 1.7 trillion won, the largest among foreign investors, followed by Saudi Arabian investors with a net sale of 1.4 trillion won worth local shares.

By Han Ye-kyung and Bae Mi-jung

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