Credit Loans 10 Trillion Won... 'Debt Investment' Increasing Again

[Asia Economy Reporter Koh Hyung-kwang] Investing in stocks with borrowed money, known as 'debt investment,' is on the rise again. The balance of margin loans has increased by more than 3.5 trillion KRW in just two months, approaching the 10 trillion KRW mark.

According to the Korea Financial Investment Association on the 19th, as of the 15th, the balance of margin trading loans stood at 9.9533 trillion KRW. Compared to the margin loan amount of 6.4075 trillion KRW on March 25, it has increased by 3.5458 trillion KRW in less than two months. It has risen every trading day for 33 trading days since March 26. Among these, there were 18 trading days when the increase exceeded 100 billion KRW, indicating a rapid growth rate.

Margin loans are funds borrowed by investors from securities firms to purchase stocks. It is a representative figure that can gauge the scale of debt investment. The balance of margin loans maintained a level of 9 to 10 trillion KRW from the beginning of the year until early March. On February 24, it even rose to the year's highest level of 10.5435 trillion KRW. However, due to the impact of the novel coronavirus disease (COVID-19), the index plummeted, and securities firms flooded the market with forced sales, causing the balance to drop to the 6.4 trillion KRW level on March 25, before starting to increase again from April.

By market, margin loans in the KOSPI market amounted to 4.778 trillion KRW, while the KOSDAQ market had 5.1753 trillion KRW, making KOSDAQ larger. Considering that as of the previous day, the KOSPI market capitalization was 1,301 trillion KRW and KOSDAQ was 254 trillion KRW, with KOSPI being more than five times larger, the proportion of margin loans in KOSDAQ is relatively high. The rate of increase in margin loans was also steeper in KOSDAQ than in KOSPI. Since March 25, margin loans in KOSPI increased by 1.6838 trillion KRW, while in KOSDAQ, they rose by 1.8619 trillion KRW. Securities-backed loans, which are loans secured by stocks, also increased by 414.1 billion KRW from 15.3967 trillion KRW on the 19th of last month to 15.8108 trillion KRW on the 15th of this month.

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The increase in debt investment is due to short-term expectations of stock price rises. The problem is that uncertainty remains. If stock prices plunge sharply in a short period, the interest burden of around 9% per annum, combined with principal repayment on the falling stock value, can multiply the burden two to three times. Hwang Se-woon, a research fellow at the Korea Capital Market Institute, pointed out, "Stock-backed loans are usually long-term loans of over a year for stock investment, but margin loans are short-term loans, typically up to about three months, taken to buy stocks with borrowed money. Given the remaining short-term uncertainties, it is advisable to approach debt investment conservatively rather than blindly."

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