Combined margin loans tied to the two chipmakers approach 9.1 trillion won
An electronic board shows the Kospi at a dealing room of the Hana Bank headquarters in Seoul on Friday. (Yonhap)
Debt-funded stock investing by South Korean retail investors is showing signs of overheating as the Kospi climbed to a record 9,000 mark, pushing outstanding margin loans to a record 38 trillion won ($24.8 billion) and prompting some brokerages to tighten margin lending rules.
According to the Korea Financial Investment Association, outstanding margin loans in the domestic stock market stood at 38 trillion won as of Thursday, up 200 billion won from a day earlier. The balance has increased by more than 10 trillion won from around 27 trillion won at the end of last year.
Of the total, margin loans on the Kospi amounted to 28.9 trillion won and those on the Kosdaq stood at 9.1 trillion won, with the Kospi accounting for 76 percent of the balance.
Margin loans, a key indicator of retail investors' leveraged bets, first exceeded 38 trillion won on May 29 and have remained at elevated levels alongside the Kospi's rally.
Margin financing has also poured into Samsung Electronics and SK hynix, the two companies leading the market's gains.
Outstanding margin loans tied to Samsung Electronics stood at 4.76 trillion won as of Thursday, while those linked to SK hynix totaled 4.33 trillion won. Combined, the two stocks accounted for 9.1 trillion won in margin borrowing — a significant increase from the end of last year, when the figure sat at around 2.53 trillion won.
Over the past six months, margin loans linked to Samsung Electronics rose from 1.65 trillion won to 4.76 trillion won, while those tied to SK hynix jumped from 884.1 billion won to 4.33 trillion won.
Together, the two stocks accounted for roughly 6.56 trillion won of the increase in margin borrowing this year. Outstanding balances nearly tripled for Samsung Electronics and increased almost fivefold for SK hynix.
Forced liquidation has also accelerated amid heightened market volatility.
Actual forced sales tied to unpaid margin accounts exceeded 550 billion won between June 1 and June 9. On June 9, forced liquidation reached a record 169.8 billion won.
Analysts warn that rising forced sales can create a vicious cycle, with falling share prices triggering collateral shortages and additional selling pressure. Concerns are growing that a correction in market leaders could amplify broader market volatility.
"The nature of margin trading is that it boosts buying demand during market rallies but increases selling pressure through margin calls during downturns," the Korea Capital Market Institute said in a report released in May. Concentrated forced liquidation could trigger a broader deleveraging cycle, it added.
As concerns over excessive debt-funded investing grow, brokerages have started tightening risk controls.
Stocks subject to a 100 percent margin requirement, or classified as Group F, face restrictions on new margin loans and maturity extensions.
KB Securities said on Tuesday that margin-financed buy orders would be temporarily restricted to comply with credit exposure limits under the Capital Markets Act.
Meritz Securities on Thursday raised margin requirements on three stocks, including Jeju Semiconductor and Jusung Engineering, to 100 percent from 30-50 percent.
Mirae Asset Securities on Thursday also reclassified 10 stocks, including Doosan Enerbility, Samsung Electro-Mechanics, Samsung SDI, EcoPro BM, POSCO Holdings and Hanwha Ocean, from Group E to Group F.
The Kospi closed at 9,052.42 on Friday, down 0.13 percent from the previous session, according to the Korea Exchange. The benchmark index briefly rose as much as 2.48 percent to 9,288.89 during the session. It took only 16 trading days for the index to climb from 8,000, first breached on May 26, to above 9,000.
ch0221@heraldcorp.com
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