KOSPI Rally Sends Margin Loan Investments to Record High

KOSPI’s Rally Toward 7,000 Is Fueling Debt-Driven Investing

Trading data for major KOSPI-listed stocks is displayed on a screen at the Korea Exchange promotional hall in Yeouido, Seoul.

As the KOSPI continues to push to new all-time highs day after day, so-called debt-driven investing (borrowing money to buy stocks ) is also shattering its own records.

According to the Korea Financial Investment Association on April 29, the outstanding balance of margin loans in the domestic stock market, seen as an indicator of debt-driven investing, stood at 35.6895 trillion won (approximately $24.2 billion) as of on June 28.

The margin loan balance refers to money that investors borrowed from securities firms for stock investment and have not yet repaid. After surpassing 35 trillion won for the first time ever on April 23, it has set another record high.

It has risen for 13 consecutive trading sessions since on April 10, increasing by 2.7 trillion won this month alone.

In the KOSDAQ market, the outstanding balance of margin loans edged down from the previous day to 10,878.0 billion won, but in the KOSPI market it rose by 160.0 billion won to 24,811.6 billion won.

This appears to reflect the KOSPI’s run of all-time highs as it looks toward the 7,000 level. Margin lending typically increases when more investors expect stock prices to rise.

As the margin loan balance continues to hit record highs day after day, securities firms are again temporarily suspending credit loans.

NH Investment & Securities said in a notice on that day, “As the limit for credit provision has been exhausted, we will temporarily suspend margin loans and stock-backed loans.”

KB Securities also temporarily restricted margin loan limits starting on that day. Accounts with margin balances of up to 500.0 million won can still trade, but if the margin balance exceeds 500.0 million won, margin purchases are not allowed.

Korea Investment & Securities said it will temporarily suspend new margin trading agreements covering general type, investment type, and stock lending type from 8 a.m. on April 30. The suspension will apply simultaneously across branch counters and all online channels.

Yoon Young-sil