Margin Debt in South Korea Tops Record 36.47 Trillion Won as Short Selling Surges

Margin debt rises to 36.47 trillion won, net short positions exceed 20 trillion won as trading sentiment heats up

As sharp swings in the Kospi become more frequent, bets on both rising and falling share prices are surging at the same time, with margin borrowing and short selling both climbing rapidly.

The balance of margin loans reached a record 36.4698 trillion won as of May 14, according to the Korea Financial Investment Association. That was up 9.1833 trillion won, or 33.66%, from 27.2865 trillion won at the end of last year. Margin debt measures money investors borrow from brokerages to buy stocks and have yet to repay, making it a key gauge of debt-fueled investing. The increase reflects stronger FOMO, or fear of missing out, after the Kospi has risen more than 70% this year.

Demand for short selling is also jumping as investors grow more wary of a correction. Short selling involves borrowing shares, selling them first and buying them back later if prices fall. A larger net short balance indicates more investors are betting on declines. The net balance of short positions on the Kospi market stood at 20.5811 trillion won as of May 12, according to the Korea Exchange. That was up 3.6531 trillion won, or 21.58%, from a month earlier, and 8.2701 trillion won, or 67.18%, from the start of this year. The figure hit a record 21.1738 trillion won on May 11. The rise came after the Kospi jumped 17.43% over five trading days, moving from the 6,000 level to near 8,000. On the Kosdaq market, the short-selling balance also rose to 7.4010 trillion won, up 1.7850 trillion won, or 31.78%, this year.

The Kospi's average daily market-cap turnover rate was 0.85% this month. The turnover rate shows how frequently shares change hands relative to the size of the market. That was sharply higher than 0.59% last month. Compared with last year's average of 0.48%, the data point to intensifying short-term trading aimed at capital gains.

Brokerages warn that rising margin debt and short selling could add to stock-market volatility. If stocks bought with borrowed money fall and investors fail to maintain the required collateral ratio, the positions can be forcibly liquidated, setting off broader market disruption. Short selling can also trigger panic selling and deepen volatility.

Ara Cho, Hankyung.com reporter rrang123@hankyung.com