Fear deepens amid the bull run…margin debt hits a record high

Fear gauge tops 50

Enters the ‘extreme fear’ zone

Margin debt at KRW 32tn…risk of a selling wave if a correction hits

As the KOSPI extends its record-high rally day after day, the so-called “fear gauge,” which reflects investor anxiety, is surging. With margin trading—often dubbed “debt-fueled investing”—also swelling to an all-time high, concerns are growing that it could become a trigger that amplifies stock-market volatility.

According to the Korea Exchange on the 26th, the VKOSPI (KOSPI 200 Volatility Index), a barometer of volatility in the domestic market, jumped 10.29% to 54.67. It has risen for eight straight sessions. Based on KOSPI 200 option prices, the index estimates how much the benchmark may fluctuate a month ahead. Readings above 50 are typically interpreted as the “extreme fear” zone.

Brokerage analysts point to the burden of the KOSPI’s sharp short-term rise and tariff uncertainty under the Trump administration in the United States as factors stoking market jitters. In particular, after the U.S. Supreme Court ruled the reciprocal tariffs illegal, there is speculation that President Donald Trump could target semiconductors—where product-specific tariff rates have yet to be set—as he overhauls the tariff framework. Kim Ji-hyun, an analyst at Daol Investment & Securities, said, “Depending on whether semiconductor product tariffs are imposed, volatility in related stocks could increase.”

Another factor fanning volatility is retail investors’ heavy enthusiasm for leveraging up to ride the blockbuster rally. The Financial Investment Association reported that as of the 25th, outstanding margin loans stood at KRW 32.134 trillion, the highest on record. The total has risen in a steep uptrend alongside the index surge, with the scale of debt-fueled investing up nearly 18% from the start of the year. Outstanding margin loans refer to funds retail investors have borrowed from brokerages to buy shares and have yet to repay.

For some small- and mid-cap stocks, margin loans account for as much as 7–9% of total listed shares. In the KOSPI market, Samyoung had the highest margin-loan ratio at 8.74%, followed by Hannong Chemical (8.02%), YG PLUS (7.48%) and Hanshin Machinery (7.43%). In the KOSDAQ market, the figures were led by Biosmart (9.34%), J2 Power (9.21%) and SY Steeltech (8.74%).

Experts warn that when the price of shares bought on margin falls below a certain level, it can quickly lead to forced liquidation, underscoring the need for caution. An industry official said, “If the market enters a correction, outstanding margin loans could turn into a wave of selling,” adding that “it could amplify declines across the broader market.”

Reporter Ryu Eun-hyuk ehryu@hankyung.com