[Exclusive] 50,000 MZ Generation Stock Margin Traders in First Half of Year... 'Forced Liquidation' Risks Increase

Stock Market Decline Hits 2030s with Poor Asset Accumulation Hardest
Consignment Trading Unpaid Balances Surge... Forced Sales Expected to Expand

[Asia Economy Reporters Jang Sehee and Park Jihwan] The 'ultra-low interest rate' policy that began with the COVID-19 pandemic has influenced the formation of bubbles in asset markets, including the stock market. At the center of this is the 'debt investment (debt-financed investment)' trend among the 2030 generation. With the Bank of Korea's likelihood of raising the base interest rate increasing and financial sector loans being restricted, the possibility of a stock market decline triggered by young investors cannot be ruled out.

◆ 62.87 million KRW borrowed per person by the 2030 generation = According to the '2030 Credit Provision Status' data obtained by Min Hyungbae, a member of the National Assembly's Political Affairs Committee, through the Financial Supervisory Service from the top 10 securities firms (Mirae Asset Securities, NH Investment & Securities, Samsung Securities, Shinhan Financial Investment, KB Securities), the number of borrowers in their 20s and 30s using securities company credit loans in the first half of this year was 54,554, doubling from 26,224 at the end of 2019 before the domestic COVID-19 outbreak. The amount borrowed per person from securities firms also increased from 45.06 million KRW to 62.87 million KRW during the same period. This means the debt burden has grown significantly. This is the result of unprecedented liquidity increases due to COVID-19, which channeled funds into asset markets. In January, the KOSPI index surpassed 3,000 points for the first time ever. Stocks, in particular, are more attractive to young people with relatively fewer assets because they are easier to finance than real estate.

The limits of debt-financed investment by young people are expected to become apparent as the liquidity party reaches its limits. If the Bank of Korea raises interest rates and financial authorities tighten household loan regulations, asset markets such as the stock market will become more unstable. Since the 2030 generation has relatively small asset sizes, their ability to repay debt is also relatively weak.

Oh Changseop, a researcher at Hyundai Motor Securities, said, "If stock prices fall, there could suddenly be a flood of forced sales, and the resulting domino effect could cause prices to drop further, increasing losses." Professor Kim Sangbong of Hansung University's Department of Economics also pointed out, "The MZ generation (Millennials + Generation Z) is engaging in excessive leveraged investment, and if prices fall, they could even face forced liquidation."

◆ Rapid increase in debt-financed stock investment... rising risk of forced liquidation = Recently, concerns about forced liquidation have been raised in the securities industry. Forced liquidation refers to the forced sale of stocks without the customer's consent when the borrowed money is not repaid within the agreed maturity period. Securities firms recover the loaned money by reselling stocks if investors who borrowed money fail to deposit the required amount in their accounts within two trading days after a margin call or if the value of the collateral stocks purchased on credit falls.

According to the Korea Financial Investment Association, the amount of forced liquidation over four days from the 17th to the 20th totaled 140 billion KRW, a 24.1% increase from 112.8 billion KRW the previous week. On the 19th alone, forced liquidation amounted to 42.1 billion KRW, the highest since 42.6 billion KRW on April 24, 2007, during the global financial crisis. The bigger problem is that the scale of forced liquidation could increase further. The outstanding margin debt, a leading indicator, has recently surged. As of the 23rd, outstanding margin debt was 426.5 billion KRW, up 44.4% from 295.4 billion KRW at the beginning of this month. The trend is clear, with outstanding margin debt rising from 222 billion KRW in early June and 293.1 billion KRW in early July to over 400 billion KRW recently.

The balance of credit loans at securities firms is also maintaining record-high levels. The balance of margin loans exceeded 25 trillion KRW for the first time on the 13th and reached a record high of 25.6112 trillion KRW on the 18th. This is more than a 30% increase compared to 19.3523 trillion KRW at the beginning of the year.

As stock-related loans do not decrease, some securities firms are suspending securities-backed loans to maintain credit provision limits. The credit provision limit of securities firms is about 100% of their equity capital. Large securities firms with equity capital over 3 trillion KRW can go up to 200%. Last month, Mirae Asset Securities, Daishin Securities, and DB Financial Investment suspended credit provision services such as stock-backed loans. This month, NH Investment & Securities and Korea Investment & Securities have suspended new securities-backed loan services.

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