Kospi Plunge Triggers $217 Million of Forced Retail Stock Sales in Two Days

A sharp selloff in South Korea’s Kospi triggered about 300 billion won ($217 million) of forced sales of retail investors’ stocks over two days.

Data from the Korea Financial Investment Association showed unpaid balances from deferred-payment stock purchases, often viewed as ultra-short-term leveraged bets, stood at 1.6245 trillion won ($1.18 billion) as of June 8. That was down 64 billion won from 1.6885 trillion won ($1.22 billion) on June 5, but still about 300 billion won higher than 1.3277 trillion won ($961 million) on June 2.

Under such trades, investors buy stocks with money borrowed from brokerages and must repay the balance within two trading days. If they fail to do so, the shares are forcibly sold on the third trading day, typically at the daily 30% lower limit. Such forced selling can inflict heavy losses on retail investors and add to market volatility.

The Kospi sank 5.54% on June 5 and 8.29% on June 8, falling below the 8,000 mark. The latest wave of forced sales followed those steep declines.

Forced liquidations totaled 139.1 billion won ($101 million) on June 8, the third-largest daily amount this year. That followed 166.1 billion won ($120 million) on June 5, lifting the two-day total above 300 billion won. Forced sales reached 145.8 billion won ($106 million) on May 20, but this marked the first time this year that the daily total exceeded 100 billion won for two straight sessions.

Forced liquidations accounted for 8.2% of outstanding unpaid balances on June 8, remaining elevated after 9.1% in the previous session. On June 5, the ratio reached its highest level since Oct. 24, 2023, when it stood at 53.2%.

Outstanding margin loans stood at 37.7091 trillion won ($27.3 billion) on June 8, slightly down from 37.8383 trillion won ($27.4 billion) on June 5. The figure shows money investors borrowed from brokerages for stock purchases and had yet to repay, underscoring the scale of debt-driven retail investing.

Margin lending typically rises when more investors are betting on stock gains. But if they fail to repay within a set period, their holdings are forcibly liquidated. In a sharp market downturn, that can lead to steep losses.

Fears over the Kospi’s decline are also rising in some corners of the market. Retail investors who bought stocks with borrowed money or put money into leveraged products may face forced liquidation if collateral in their accounts falls short. In a steep selloff, leveraged products can leave investors with losses that are twice as large rather than returns that are twice the target.

Still, the Kospi closed in the 8,090 range on June 9 after jumping more than 8%, recouping much of the previous day’s plunge.

Kim So-yeon, Hankyung.com reporter sue123@hankyung.com