'Debt Investment' Donghak Ants Hit Hard by US Tightening... Forced Sales Hit Another Annual High

In a Plunge Market, "Is This the Bottom?" Rebound Betting
Short Selling Ratio Hits 13% on the 15th, Highest This Year
"Liquidity More Abundant Than Pre-COVID, Beware of Further Declines"

On the 17th, amid the impact of a sharp global stock market decline, the KOSPI index fell below the 2400 level briefly in early trading. Dealers are working in the Hana Bank dealing room in Euljiro, Seoul. The intraday break below 2400 on the KOSPI is the first in about 1 year and 7 months since November 5, 2020 (2370.85). Photo by Moon Honam munonam@

[Asia Economy Reporter Ji Yeon-jin] As the U.S. implemented a 'Giant Step' (a 0.75bp base interest rate hike), the domestic stock market continued to decline, resulting in the largest margin call volume of the year. Recently, as the domestic stock market has been breaking support levels day after day, investors who borrowed money to bet on a 'rebound' are directly hit by the U.S. tightening measures.

According to the Korea Financial Investment Association on the 17th, the margin call amount in the domestic stock market on the 15th was 31.555 billion KRW, the highest level this year. This is the largest scale since January 11, when concerns about full-scale tightening emerged due to highlighted U.S. inflation (31.371 billion KRW). On the 15th, the margin call ratio compared to outstanding credit balance was 13.1%, also the highest level this year.

Margin trading involves investors borrowing money from securities firms to buy stocks and repaying the money, a kind of 'credit transaction.' Unlike credit trading, the repayment period is about three trading days, and if the money is not repaid within this period, a margin call occurs immediately. Although margin calls exceeded 20 billion KRW daily on average during the global stock market plunge in January this year, the margin call ratio was only 7.6% due to the large amount of outstanding credit balance at that time.

This month, outstanding credit balance decreased by more than 20% compared to January (287.7 billion KRW), recording a daily average of 226.8 billion KRW, but surged to 357.7 billion KRW on the 15th. Due to concerns over the U.S. Federal Reserve's (Fed) Giant Step, the domestic stock market fell for seven consecutive trading days, with the KOSPI hitting the lowest point of the year during this period. It is estimated that investors borrowed money to invest, expecting a rebound. The KOSPI index, which rebounded the day before the Fed's Giant Step, showed a sharp decline again on the day, indicating that margin calls are expected to increase further.

The domestic stock market, which plummeted due to the COVID-19 pandemic, rose by leveraging liquidity released through global monetary easing policies. However, the KOSPI has been on a downward trend since reaching a peak of 3316 in March last year. This is because individual investors, known as Donghak Ants who led liquidity, significantly stopped stock trading after a sideways market last year. Individual investor trading volume expanded from 397.8 trillion KRW in 2020 to 481.5 trillion KRW last year but sharply dropped to 131.2 trillion KRW so far this year. Investor deposits, which are funds waiting to buy stocks, also sharply decreased from 70 trillion KRW at the beginning of this year to 57 trillion KRW as of yesterday, showing a contraction in investment sentiment.

The problem is that liquidity remains abundant compared to before COVID-19, but since the U.S. plans to take another Giant Step next month, if the tightening intensity increases, liquidity could decrease further. A reduction in liquidity raises the possibility of further declines in the domestic stock market. Investor deposits were about 28 trillion KRW in 2019, and individual investor trading volume was about 116.6 trillion KRW. Jae-hyuk Han, a researcher at Hana Financial Investment, said, "Liquidity, which was the main factor leading the Donghak Ant movement to success, is facing a major obstacle called global tightening. Although there is still a large amount of funds compared to before COVID-19, gradually shrinking liquidity will increase KOSPI's volatility and exert additional downward pressure, so investors need to be cautious."

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