Persistent 'Bittu', Credit Loans Increase for 42 Consecutive Days...Longest in 13 Years

Longest consecutive increase record since June 2007
Debt investment scale nears 11 trillion won... rises over 4 trillion won compared to March
Individual investor sentiment focused on short-term profit oil and inverse ETFs
Concerns over stock price crash recurrence amid US-China tensions and corporate shocks

[Asia Economy Reporter Minwoo Lee] The practice of borrowing money from securities firms to invest in stocks, known as 'debt investment,' is increasing to an unprecedented level. The balance of margin loans (money borrowed by investors from securities firms to buy stocks) has nearly reached 11 trillion won, setting a record for consecutive increases over 13 years. Given that the economic shock from the novel coronavirus disease (COVID-19) has not yet ended and that a series of negative factors such as US-China tensions are anticipated, experts point out that risk management to prepare for a stock price decline is necessary.

According to the Korea Financial Investment Association on the 1st, as of the 28th of last month, the balance of margin loans reached 10.8073 trillion won, marking the highest level of the year. This is the largest scale since October 24, 2018. The upward trend is becoming even more remarkable. For 42 consecutive trading days from March 26, the balance of margin loans increased every single day without a break. This is the longest streak in 13 years since the 69 consecutive days of increase from March 19 to June 26, 2007. When the stock market crashed in early March due to COVID-19, margin loan balances fell to a yearly low of 6.4075 trillion won due to forced liquidation, but within two months, the scale of debt investment grew by more than 4 trillion won again.

Investment behavior has also shifted towards a 'one-shot' mentality. At the beginning of the year, when margin loan balances were increasing, individuals mainly purchased blue-chip large-cap stocks such as Samsung Electronics, SK Innovation, Kia Motors, and Shinhan Financial Group. They valued the solid large companies highly and invested with a mid- to long-term perspective, trusting the 'upward trend' rule.

However, after the stock market crash caused by COVID-19, investment sentiment shifted towards highly volatile stocks. From March 26, when margin loan balances hit their yearly low, until the 28th of last month, the stock most purchased by individuals was the KODEX 200 Futures Inverse 2X Exchange-Traded Fund (ETF). With a net purchase of 1.6606 trillion won, it even surpassed Samsung Electronics, the top blue-chip company by market capitalization, which had a net purchase of 1.54 trillion won. Among the top 10 stocks by individual net purchases, inverse ETFs or crude oil futures ETFs that invest in index declines, such as KODEX WTI Crude Oil Futures (H) (3rd place, 1.2385 trillion won), KODEX KOSDAQ 150 Futures Inverse (7th place, 358.2 billion won), and KODEX Inverse (9th place, 324.5 billion won), accounted for a significant portion. This indicates a focus on short-term profit realization by anticipating market trends rather than investing based on the long-term growth potential of companies.

Securities experts are raising concerns about this speculative investment behavior. While the economic slowdown in the first half of the year was a consumption shock caused by individuals reducing external activities and tightening their wallets, the second half is expected to bring a corporate shock as companies show clear signs of poor performance, raising the possibility of another stock market crash.

Yoon Yeosam, a researcher at Meritz Securities, said, "With the US-China conflict intensifying around the Hong Kong security law and the European economy failing to gain momentum despite policy stimuli, bankruptcies among companies are increasing, and emerging markets are highly unstable. At this point, even a small crack can cause risky assets to fall again."

A similar trend was observed during the steady rise in margin loan balances in 2007. At that time, the stock market overheated to the extent that many investors engaged in debt investment, and the KOSPI index surpassed 2000 for the first time in history in July of that year. However, the global financial crisis the following year caused the KOSPI index to fall to the 890 range in about a year.

Kim Youngik, an adjunct professor at Sogang University Graduate School of Economics, warned, "Corporate profit shocks will be significant worldwide. Currently, US stock prices are overly inflated compared to real economic indicators, driven purely by monetary power, and eventually, the limits of liquidity supply measures will emerge." He added, "In this case, a wave of corporate bankruptcies could occur. If Korean stock prices fall, foreigners will withdraw money tied up in the domestic stock market, accelerating the domestic stock market crash."

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