Koreans Bought Stocks on Credit Even as Kospi Fell Below 8,000; Debt-Funded Bets Rose 1.7 Trillion Won in Five Days
Summary
- The outstanding balance of overdraft loans at South Korea’s five largest commercial banks rose 1.4192 trillion won even as the Kospi slid from the 8,000 level to 7,484.41 during the market correction.
- Over the same period, brokerages’ margin loan balances increased by 301.9 billion won, showing that investors are expanding debt-fueled stock bets on expectations of a short-term rebound.
- The securities industry says South Korea’s stock market could face a further hit if the possibility of a U.S. benchmark interest-rate hike materializes, adding to pressure from rising interest rates and weakness in semiconductor shares.
Forecast Trend Report by Period
Kospi Fell Below 8,000, but Debt-Funded Stock Bets Increased
Overdraft Loans and Margin Debt Up 1.7 Trillion Won in Five Trading Days
Investors Seem to Be Betting on a Short-Term Rebound in a Volatile Market
Overdraft loans at South Korean banks rose by more than 1.4 trillion won in the first week of June. Margin loans at securities firms increased by more than 300 billion won over the same period. The gains suggest investors are stepping up debt-funded stock purchases in hopes of a short-term rebound as market volatility intensifies.
As of June 10, outstanding overdraft loans at the five major commercial banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at 42.9516 trillion won on June 8, up from 41.5324 trillion won at the end of May, according to the financial industry. That was an increase of 1.4192 trillion won in five trading days.
Overdraft borrowing kept climbing despite the market correction. The balance was 42.343 trillion won on June 4, when the Kospi closed at 8,639.41. By June 8, after the index had fallen to 7,484.41, the balance had risen to 42.9516 trillion won, up 608.6 billion won in two trading days.
Margin debt at brokerages also surged over the same period. Data from the Korea Financial Investment Association showed outstanding margin loans on the main board rose by 301.9 billion won, to 28.3264 trillion won on June 8 from 28.0245 trillion won at the end of May. Industry officials say investors likely used borrowed money from banks and brokerages to buy stocks, betting the sharp drop would be followed by a rebound.
Debt-fueled investing has jumped sharply each time the stock market corrected this year. One example came in late February, when war linked to Iran broke out in the Middle East. After the Kospi closed at 6,244.13 on Feb. 27, the index fell to 5,583.90 on March 5 amid the outbreak of the conflict. Over the same stretch, overdraft loan balances at the five major banks climbed from 39.4249 trillion won to 40.7227 trillion won, an increase of more than 1 trillion won.
The Kospi first rose above 8,000 in intraday trading on May 15 and set a record closing high of 8,801.49 on June 2. It later retreated on rising interest rates and weakness in semiconductor shares, ending at 7,730.82 on June 10. That left the benchmark down more than 12% from its recent peak. The securities industry says South Korean stocks could face further pressure if the possibility of a U.S. benchmark rate increase becomes reality.
Bae Tae-ung, Korea Economic Daily reporter btu104@hankyung.com
Korea Economic Daily
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