KOSPI Hits 2000, Warning for Debt Investment

[Image source=Yonhap News]

[Asia Economy Reporter Koh Hyung-kwang] The domestic stock market is rapidly rebounding, fueled by expectations for the development of a novel coronavirus (COVID-19) vaccine, the reopening of economic activities in major countries including the United States, and the aggressive buying spree by so-called 'Donghak Ants' (individual investors). This week, the KOSPI index even touched the 2000 mark during trading hours. However, concerns have been raised as the scale of 'debt investing'?individual investors buying stocks on borrowed money?is also rapidly increasing.

According to the Korea Exchange on the 23rd, the KOSPI index closed at 1,970.13, down 1.4% from the previous session. However, until the day before, it had risen for five consecutive trading days, and on the 21st, it surpassed the 2000 mark during the session. The last time the KOSPI exceeded 2000 was on March 6 (intraday high of 2062.57), about two and a half months ago.

The KOSPI index plummeted from early March as confirmed COVID-19 cases surged domestically. On March 19, it fell to a yearly low of 1439.43. Since then, the KOSPI has rebounded rapidly, recovering more than 35% from its yearly low, driven by expectations of economic recovery due to the reopening of global economic activities. The KOSDAQ index also showed a fierce upward trend recently, hitting a yearly high by closing at 716.02 on the 21st, despite closing lower after opening higher the previous day.

One indispensable factor in the rise of the domestic stock market is the power of individual investors, known as 'Donghak Ants.' Since the first COVID-19 case was reported in Korea on January 20, individual investors have purchased stocks worth 26.49 trillion won in the KOSPI market. In contrast, foreigners and institutions have sold net amounts of 24.85 trillion won and 4.19 trillion won, respectively, during the same period. Essentially, individual investors absorbed all the selling pressure from foreigners.

However, concerns arise as the balance of margin loans?borrowed money used by individual investors to buy stocks?has again exceeded 10 trillion won. As of the 21st, the margin loan balance stood at 10.2247 trillion won. This is the first time in about two months since March 12 (10.026 trillion won), before the COVID-19 crisis fully impacted the stock market, that the margin loan balance has surpassed 10 trillion won.

Margin loans have increased for 37 consecutive trading days. By market, margin loans in the KOSPI market amount to 4.856 trillion won, while in the KOSDAQ market, they are even higher at 5.3686 trillion won. This is why voices in the market warn about the so-called 'debt investing' by individuals amid the stock market recovery.

Experts express concern that if the domestic stock market's upward trend is limited, large-scale 'debt investing' could increase market volatility. A securities industry official pointed out, "Margin loans act as leverage that drives index rises when the market is good, but in a downturn, they can accelerate index declines. Especially, if investors fail to repay settlement funds, forced sales of collateral stocks by securities firms?known as margin calls?can become a destabilizing factor that increases market volatility."

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