The boost to South Korean stocks from the nation’s move to ban short-selling has quickly faded, with an index of small-cap stocks on course to erase all the gains seen following the regulator’s surprise decision.

The Kosdaq Index slid as much as 1.9% Monday, falling in every single session since the ban triggered a 7.3% jump on Nov. 6. If the day’s losses hold, the index will close at levels seen before the curb came into effect. Electric vehicle battery names including Ecopro BM Co., Ecopro Co. and L&F Co. have been the biggest drags on the gauge over the past week.

The Kosdaq notched its best one-day gain in more than three years last Monday, which many market watchers attributed to a covering of some short positions. However, global investors and local funds have since reduced Kosdaq positions in a sign that they are looking beyond the ban to focus on fundamental factors such as earnings and the broader global equities backdrop. Retail investors continued to boost holdings.

“The ban’s market-boosting impact has ended,” said Cho Junkee, an analyst at SK Securities Co., adding that investors will likely be keen on macroeconomic factors and corporate fundamentals. “Rather than covering their short positions on the EV battery names, foreign funds seem to be keeping their shorts on expectations that they may fall further.”

Under the new rules, investors can’t add fresh short bets on local equities through June 30, 2024, but aren’t obliged to sell their previous bearish positions.

--With assistance from Ishika Mookerjee.