Retail investors riding the bull market... Debt-financed stock investments hit record highs daily

[Asia Economy Reporter Koh Hyung-kwang] As the stock market continues to hit record highs day after day, the scale of individual investors' 'debt investment (borrowing to invest in stocks)' has also surpassed the largest ever amount of 18.5 trillion won.

According to the Korea Financial Investment Association on the 8th, as of the 4th, the outstanding balance of credit loans in the domestic stock market reached 18.5099 trillion won, more than double compared to the beginning of this year (9.2072 trillion won). Since surpassing 18 trillion won for the first time on the 1st, it has continued to set new records every day. The outstanding balance of credit loans has increased for 10 consecutive trading days since the 20th of last month (17.3822 trillion won), when the KOSPI index was on the rise. During this period, the outstanding balance increased by a total of 1.1277 trillion won, averaging about 110 billion won per day.

By market, the KOSPI market recorded 9.3847 trillion won and the KOSDAQ market 9.1252 trillion won, with both markets exceeding 9 trillion won in outstanding credit loans for the first time ever. Typically, credit loans have been concentrated mainly in the KOSDAQ market, where short-term trading is more frequent. However, since September, the KOSPI balance has also surpassed the record high of 8 trillion won, showing an expansion of credit loans from KOSDAQ to KOSPI.

The outstanding balance of credit loans is the cumulative amount borrowed by individuals from securities firms to purchase stocks and serves as a kind of lagging indicator following the index's strength. It is interpreted as meaning that individuals are borrowing to invest based on the expectation that prices will rise further. The outstanding balance, which had been maintained at around 9 to 10 trillion won since the beginning of the year, sharply dropped to around 6.4 trillion won in March when the COVID-19 pandemic triggered a stock market crash. However, after the market began to rebound, the outstanding balance of credit loans rapidly increased. It reached the 12 trillion won level at the end of June, nearly doubling in three months, then exceeded 14 trillion won and 15 trillion won in July and August respectively, and even surpassed 17 trillion won in September. Following warnings and concerns from financial authorities about excessive debt investment, it briefly fell back to the 16 trillion won level but then rose again to the 17 trillion won level with the market uptrend, eventually surpassing 18 trillion won earlier this month.

As individual investors' debt investment surges, securities firms are also rushing to manage soundness. The Capital Markets Act limits securities firms' credit loan limits to within 100% of their own capital (with an additional 100% limit for comprehensive financial investment business operators with capital of 3 trillion won or more). Most securities firms set internal standards separately from the Capital Markets Act, typically managing the limit at 60-70% of their own capital to avoid exceeding it. When this limit is reached, services are temporarily suspended, and recently, due to the overheated stock market, securities firms' credit loans have repeatedly approached these limits.

Samsung Securities continues to provide credit financing services as before but has restricted securities-backed loans since early this month. KB Securities stopped securities-backed loans for stocks, funds, and equity-linked securities (ELS) from early this month. Korea Investment & Securities also temporarily suspended new credit financing purchases and new loans secured by deposited securities. Kiwoom Securities raised the cash ratio of collateral in credit accounts from 15% to 20% and lowered the substitute collateral ratio by 5% to manage loan limits. A financial investment industry official said, "As market expectations for the stock market's strength remain high, the number of securities firms suspending credit financing services is expected to continue increasing."

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