(Bloomberg) -- Pictet Asset Management plans to buy more South Korean stocks once a planned resumption of short-selling in the nation allows it to hedge its long equity positions.
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The Swiss fund is preparing to buy more Korean defense shares, given budgets will continue to rise globally, Jon Withaar, the firm’s head of Asia special situations, said in an interview.
Other sectors tied to Korea’s campaign to boost corporate valuations are also on Pictet’s radar, he said.
His comments reflect global funds’ eagerness to boost their trading in Korea, as the country remains on track to lift a short selling ban on March 31. The resumption could lure back hedge funds to Korea, who use the long-short strategy to manage their risks.
“For most market neutral and quant investors, it is not about attacking the market and outright short selling,” Withaar said. “It is much more about being able to hedge longs with a short position.”
Korea’s regulators imposed the short selling ban across all stocks in November 2023 after retail investors complained that it gives unfair advantages to foreign funds in the nation’s $1.7 trillion equity market. The benchmark Kospi Index has jumped almost 10% so far in 2025. The MSCI Asia Pacific Index is up 3.2%.
During the latest curbs, officials have investigated global banks on their past short-selling transactions and fined some of them for rule violations. They have also developed an electronic monitoring system to detect naked shorting — a practice of selling shares without borrowing them first — that is illegal in Korea.
Some equity funds use long-short strategies to minimize the impact of market moves by matching a long position in a stock that’s expected to rise with a short position in one expected to fall. Korea’s ban raised alarm bells for global investors and triggered criticism that it would curb the market’s appeal.
Defense and Value-Up
The country’s defense stocks, including Hanwha Aerospace Co., LIG Nex1 Co. and Hyundai Rotem Co., have rallied this year as the US president put pressure on allies to step up military spending. Hanwha has more than doubled since the year began and is the top performer in the MSCI Asia Pacific Index.
Defense stocks likely won’t continue rising at their current pace but the “earnings trajectory is definitely positive,” Withaar said. “Companies like Hanwha Aerospace are a perfect example.”