Bold Ants, Margin Debt Increased Further in the Plunging Market

As of the 13th, 255.179 billion KRW
38% surge just this month

Growing fear over increased risk of forced liquidation
Forced liquidation amount rises with index decline

[Asia Economy Reporter Minji Lee] Despite the market crash, margin trading receivables are on the rise. In other words, even though no one can easily predict the direction of the stock market, many individual investors are borrowing money to dive deeper into the market. Even if the stock market falls further and they cannot repay the borrowed money, leading to forced liquidation (margin call), these leveraged retail investors seem undeterred.

According to the Korea Financial Investment Association's comprehensive statistics portal on the 15th, as of the 13th, margin trading receivables amounted to 255.179 billion KRW, an increase of 8.9 billion KRW compared to the previous trading day. Margin trading receivables have steadily increased this month; the receivables recorded 184.152 billion KRW on the 31st of last month, rising by 38% (71 billion KRW) in less than 10 trading days.

Margin trading receivables refer to the situation where securities firms pay the settlement amount on behalf of individual investors when they lack sufficient funds to settle stock transactions. Similar to credit loans since money is borrowed from securities firms, margin trading receivables have a collateral ratio of about 30%, allowing investors to significantly increase their investment scale with a small amount of money.

The sharp increase in margin trading receivables is due to individual investors aggressively accumulating stocks, expecting a technical rebound as stocks plummeted to the bottom. Due to concerns over interest rate hikes following the release of the US Consumer Price Index (CPI), the KOSPI fell more than 7% this month from 2,685.90 to 2,492.97, and the KOSDAQ index dropped 8%, sliding from 893.36 to 823.58. This is because the US Federal Reserve is expected to move beyond a ‘big step’ (raising rates by 50 basis points at once) to a ‘giant step’ (75 basis points) to curb inflation.

The increase in margin trading receivables is worrisome because the risk of forced liquidation grows, potentially intensifying market fear. Margin trading receivables have a short repayment period; if investors fail to sell or repay the borrowed money within three trading days, forced liquidation occurs. In fact, as the domestic stock market recently plunged, the amount of forced liquidation relative to margin receivables has significantly increased. Forced liquidation amounts surged from 11.955 billion KRW on the 31st of last month to approximately 17.4 billion KRW and 16.6 billion KRW on the 10th and 13th, respectively.

Although the price merit has increased due to the sharp market decline, securities experts firmly advise that now is not the time to buy falling stocks. Even if the June Federal Open Market Committee (FOMC) issues are reflected in the market, short-term uncertainty is expected to persist until the June CPI announcement.

Lee Seunghoon, Head of Research at IBK Investment & Securities, said, “Given the high uncertainty in the second half of the year, it is difficult to say the stock market is sufficiently undervalued. It is a time to increase cash holdings and adopt a conservative investment strategy. If the Q2 earnings outlook is downgraded, there is a possibility of further decline.”

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