South Korean stocks experienced a decline on Monday due to concerns surrounding upcoming US tariffs and the lifting of a 17-month ban on short selling, which is anticipated to cause short-term volatility.

The Kospi Index, the benchmark index, dropped by up to 2.3% at the beginning of the trading day, following two consecutive sessions of losses driven by uncertainties related to the imminent US tariff announcements. In early trading on Monday, technology and transport stocks were among the leading decliners.

Effective Monday, hedge funds and other investors are permitted to sell borrowed shares for all of the approximately 2,800 listed companies.

The removal of the ban on short selling, which had been in place since November 2023, was considered a hindrance to Korea's aspiration for an upgrade to developed market status from index operator MSCI Inc.

Although the Kospi has been the second-best performer among major Asian equity gauges this year, global investors have not been enticed to return, as they have largely refrained from participating in the rally. Since August, they have sold approximately $20 billion in Korean stocks due to the country's political instability triggered by a brief declaration of martial law.