[Alpha Biz= Paul Lee] Investor anxiety is growing as South Korea’s KOSPI index recorded its largest-ever drop, heightening concerns among retail investors who borrowed money to invest in stocks.

The outstanding balance of margin loans, a key indicator of leveraged stock investment by individuals, has surpassed 32 trillion won for the first time, while market fear is rapidly intensifying.

According to the Korea Financial Investment Association (KOFIA) on March 4, the outstanding balance of margin loans stood at 32.8041 trillion won as of March 3, marking a record high for the seventh consecutive trading day.

Margin loans tied to KOSPI-listed stocks reached a record 21.7781 trillion won, while those related to KOSDAQ-listed shares exceeded 11 trillion won for the first time since 2021.

Margin trading loans represent funds borrowed by investors from securities firms to purchase stocks that have not yet been repaid, and they are widely regarded as a key gauge of leveraged investment activity in the stock market.

The concern is that funds accumulated during a rising market can become another source of instability when the market sharply declines.

Stocks purchased through margin loans are used as collateral for the borrowed funds. When stock prices fall, the value of the collateral declines accordingly.

“If the index plunges, the number of accounts failing to meet the required collateral ratio increases, which can trigger a chain reaction of forced stock sales,” a financial investment industry official said.

Market participants are particularly wary of forced liquidation, known in Korea as ‘margin call selling.’

If the value of collateral falls below a certain threshold, securities firms demand additional margin deposits from investors. If investors fail to meet the requirement, the firms can forcibly sell the stocks at the start of trading on the following day or the next business day.

“If large volumes of forced selling appear simultaneously at the market open, it could further amplify the decline in the index,” a brokerage official said.

Securities firms have also begun tightening risk management amid the rapid expansion of margin trading.

NH Investment & Securities announced that it will suspend new purchases through margin loans starting March 5.

 

 

 

[ⓒ 알파경제. 무단전재-재배포 금지]