Liquidity Shrinks... Retail Investors' Margin Debt Hits Record High of 25 Trillion Won

Credit Loan Balance 25.4712 Trillion
Monthly Record Highs Since 19 Trillion at Start of Year
This Month, Foreigners' Focused Semiconductor Sell-Off
Triggers Stock Plunge and Credit Trading Surge

US Tapering Expected This Year
Foreigners' Four-Month Consecutive Net Selling
Warning of Loss Risks from Leveraged Investment

[Asia Economy Reporter Ji Yeon-jin] The so-called "debt investment" scale, where investors use securities company loans to invest in the stock market, has surpassed 25 trillion won, marking an all-time high. Amid a shrinking liquidity in the domestic stock market due to foreign investors' continued capital outflows ahead of the semiconductor peak-out (passing the high point) forecast and the U.S. tapering (asset purchase reduction), concerns are growing as the enthusiasm for debt investment intensifies.

According to the Korea Financial Investment Association on the 19th, as of the 17th, the credit transaction loan balance reached 25.4712 trillion won, the highest level since statistics began in 1998. Credit transaction loans are funds borrowed from securities companies to cover the shortfall when purchasing stocks. On the 13th of this month, when the KOSPI fell below the 3,200 mark due to foreign investors' semiconductor sell-off, the balance exceeded 25 trillion won for the first time.

The funds used to purchase stocks through securities company loans have been hitting new monthly highs, rising from 19 trillion won at the beginning of this year. Compared to March last year, when the global COVID-19 pandemic began and the domestic stock market plunged, the credit transaction loan balance was in the 6 trillion won range, showing nearly a fourfold increase. Since last year, governments worldwide have injected large-scale funds to respond to the economic shock caused by COVID-19, driving liquidity into the stock market and pushing up stock prices. Individual investors, seeing this as an opportunity, have gradually increased the scale of debt investment. In particular, as foreign investors concentrated on selling semiconductor stocks causing a sharp price drop, it appears that credit transactions were fueled by the perception of a low-price buying opportunity.

The problem is that foreign investors have continued their selling trend in the domestic stock market ahead of the U.S. tapering. Since May, foreigners have been net sellers for four consecutive months, withdrawing over 20 trillion won. The proportion of foreign capital in the domestic stock market fell below 30% for the first time on the 6th of this month and has continued to shrink, recording 29.1% yesterday. With the U.S. Federal Reserve (Fed) likely to start tapering within the year, foreign capital outflows may continue, increasing volatility in the domestic stock market. This indicates a high risk of losses from debt investment. Ha Daehun, a researcher at SK Securities, said, "With the KOSPI hitting record highs in the first half of the year and ongoing concerns about the possibility of Fed tapering, it will be difficult for the domestic stock market to show a surprise rebound in the near term. In such a market, it is not easy for investors to achieve expected returns."

Moreover, margin trading unpaid balances have also expanded this month, raising concerns about forced liquidation losses. Unlike credit transactions, margin trading unpaid balances occur when securities companies pay the settlement amount on behalf of investors for up to three trading days when stock settlement funds are insufficient. If investors fail to repay within three trading days, forced liquidation occurs, where the securities company forcibly sells the relevant stocks. Margin trading unpaid balances fell below 300 billion won at the beginning of this month but increased to 398.7 billion won on the 17th. During this period, the proportion of forced liquidations jumped from 4.9% to 8.2%. The Korea Exchange issued an investor advisory notice yesterday due to liquidity concerns and distributed precautions related to forced liquidations.

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