South Korea saw its benchmark KOSPI touch 2,000 points for the first time in July 2007. But it suffered an extreme bear market in the wake of the global financial crisis, falling to 938.75 on Oct. 23, 2008.

The first-tier equity index rapidly regained to hit a new historic record of 2,228.96 on May 2, 2011, raising hopes that it might break through the 2,500 barrier to approach 3,000 points within a few years. This was too rosy a forecast.

Unlike some brokerage firms’ predictions, the KOSPI has been locked up in a “box pattern” ranging between 1,800 and 2,150 since it peaked at the all-time high five years ago.

Over the past three months, it has stayed below the 2,000 mark. This year it is further frustrating investors with its bearish status extending to 1,840.53 during a trading session.

Analysts point to a variety of external risks in explaining why the KOSPI has been unable to rise further, despite the robust fundamentals of a group of blue chips.

Meanwhile, small investors’ say differently. Many say on stock bulletin boards that local institutional investors are struggling to find reasons in a bid to pull down equity prices and profits via short selling.

Securities firms’ research appears to be losing credibility. When a brokerage house touts a buy recommendation for a company, many small investors seem to regard it as a signal to sell the shares, and vice versa.

Individuals’ distrust of brokerage reports is attributable to the losses they have experienced after following recommendations by some securities firms.

Some brokerages tout sell recommendations when an undervalued company’s stock price plunges, hit by massive institutional short selling. When some individuals sell shares in fear of further losses, institutions snap them up to cover their short sales - and rake in a profit.

On the other hand, they might recommend individuals buy shares a company whose stock price is unusually high. But the institutions then hand over their own stakes in the company to individuals, or begin short selling with borrowed stocks, in anticipation that prices will fall.

It is true that there will always be winners and losers on the capital market. However, deep-rooted mistrust among small investors due to habitual short selling and misleading reports will ultimately hamper development of the equity market.

On Thursday, Korea’s bourse will mark its 60th anniversary. While the KOSPI went through the 1997 currency crisis and the 2008 subprime mortgage crisis, the index has to overcome the short selling power in order to break away from the box pattern.

In Korea, local and foreign institutional investors have been entitled to carry out short selling for 20 years. But individuals are banned from doing so. Some government officials argue that it is difficult to give small investors the same authority, as there is a possibility that they could easily fall into defaults after selling borrowed stocks.

This argument is illogical. Unless there are proactive regulations ensuring a level playing field, the local bourse will lack real competitiveness.