'Borrowing to Invest' Gains Momentum Again

Credit Transaction Loan Balance Increases for 14 Consecutive Trading Days... Short-Term Profit Moves Amid Stock Market Recovery

[Asia Economy Reporter Park Jihwan] So-called 'debt investment' investors who borrow money to invest in stocks are reemerging. This is interpreted as a result of the rapid recovery of the domestic stock market, which had plummeted due to the spread of the novel coronavirus infection (COVID-19), leading to concentrated movements aimed at short-term profits. The securities industry's efforts to expand loan accessibility by discounting interest rates on margin loans or extending loan availability hours also appear to have influenced this trend.

According to the Korea Financial Investment Association on the 17th, as of the 14th, the balance of margin loans increased by 116.9 billion KRW from the previous trading day to 7.9976 trillion KRW. This marks 14 consecutive trading days of increase since the 25th of last month. The balance has increased by 1.3087 trillion KRW this month alone. The margin loan balance, which was in the 10 trillion KRW range in February, fell to the 6 trillion KRW range in mid-last month. As the COVID-19 situation rapidly worsened, the stock market experienced a crash, causing a sharp decline in margin loan balances.

Since the domestic stock market began to recover at the end of last month, margin loans have resumed an upward trend. After hitting a low of 6.4075 trillion KRW on the 25th of last month, it is now approaching the 8 trillion KRW mark. A financial investment industry official explained, "As the KOSPI, which had fallen to the 1400 level last month, reached the 1900 level and showed signs of recovery, it seems to be the movement of individual investors trying to get on the rising market without delay."

Securities firms are actively competing to attract customers by offering discounts or free policies on margin loan interest rates, which are usually around 8% per annum. Korea Investment & Securities is applying an interest rate of 2.2% per annum for 60 days to investors without prior margin loan experience until the end of this month. Sangsangin Securities has decided not to charge margin loan interest for one month up to a limit of 100 million KRW for customers who open mobile accounts.

Late-night loan services targeting individual investors are also expanding. Samsung Securities extended the loan availability hours from business hours only to 11 PM starting from the 10th. Securities collateral loans have been extended from 4:30 PM, and sale collateral loans from 5 PM, both until 11 PM.

The financial authorities are cautious about 'debt investment.' Recently, the stock market has shown high volatility, raising concerns that using leverage such as financial institution loans for investment could lead to significant losses. The KOSPI 200 volatility index (VKOSPI), reflecting market volatility, surged from 19.3 at the end of January to 48.6 at the end of March, then recorded 31.37 on the 13th of this month.

The Financial Supervisory Service warned, "The stock market volatility expansion due to this COVID-19 is different from past financial crises, making future predictions very difficult," adding, "In particular, leveraged investment incurs high interest costs and losses can be amplified by forced liquidation when stock prices fall."

This content was produced with the assistance of AI translation services.