Debt-fuelled stock buying heats up further despite regulators’ warnings

Margin loans near record high at 33 trillion won

Despite financial regulators issuing stern warnings over so-called “debt investing” (borrowing to invest) and other high-risk strategies, the scale of such borrowing continues to be tallied at record-high levels day after day. As volatility has increased in Korea’s stock and FX markets amid prolonged Middle East–driven geopolitical risks, concerns are also rising about forced liquidations triggered by margin trading.

According to the Korea Financial Investment Association on the 27th, outstanding margin loans stood at 33.0285 trillion won as of the 25th. Margin loans refer to the amount investors have borrowed from brokerages for stock purchases that remains unpaid. The total has stayed in the 33 trillion-won range for 10 consecutive days since the 16th. That is an increase of more than 5 trillion won from the end of last year (27 trillion won).

Financial regulators highlighted the risks of forced liquidation stemming from margin trading a total of five times this month. Outstanding margin loans hit an all-time high of 33.6945 trillion won on the 5th. After the warnings, the figure briefly cooled and fell to the 31 trillion-won range, but began rising again from the 12th.

As debt investing grows, concerns over forced liquidation are also mounting. Forced liquidation refers to brokerages selling clients’ holdings at prices below the market to cover shortfalls in margin accounts. According to the association, the actual value of forced liquidations relative to brokerage trading receivables averaged 27.5 billion won per day this month. It has been on an uptrend for three straight months following January (10.2 billion won) and February (13.5 billion won). In particular, this month’s figure is roughly double that of the previous month.

Bae Sung-soo, baebae@hankyung.com