Margin-Call Liquidations Near $216 Million as Kospi Slides; Korean Investors Pile Into 3x ETFs Overseas

Forced Sales Hit $123 Million Over Two Days of Market Declines

Investor Deposits Shrink, Bond Buying Continues

'Beyond Warning Investors, Authorities Must Restore Market Trust'

Forced selling tied to margin trading in South Korea approached 298.1 billion won ($216 million) as the Kospi fell for seven straight trading sessions. Investor cash parked on the sidelines also declined. At the same time, Korean investors' net purchases of U.S. stocks exceeded last month's total, with buying concentrated in high-risk products tied to a rebound in semiconductor shares.

According to the Korea Financial Investment Association, forced sales related to unpaid margin balances totaled 298.1 billion won ($216 million) from Oct. 6 to Oct. 15. Of that, 169.8 billion won ($123 million) came on Oct. 14 and Oct. 15 alone. The daily totals were 89.3 billion won ($64.7 million) on Oct. 14 and 80.5 billion won ($58.3 million) on Oct. 15.

Margin-call liquidations occur when brokerages forcibly sell an investor's shares because settlement funds were not paid or collateral has fallen short. When stock prices plunge, investors can be forced to sell holdings even while absorbing losses.

Over that period, the Kospi fell for seven consecutive trading days, dropping to 5,554.22. It rebounded to 5,668.05 on Oct. 16, but funds around the stock market remained under pressure. Investor deposits fell 4.1% to 96.9121 trillion won ($70.2 billion) on Oct. 15 from 101.0486 trillion won ($73.2 billion) on Oct. 6.

In contrast to the turmoil in South Korea's domestic market, buying of U.S. stocks intensified. Seibro, the securities information portal run by the Korea Securities Depository, showed Korean investors were net buyers of $3.5 billion of U.S. stocks from Oct. 1 to Oct. 15. That was 3.5 times the $1 billion of net purchases recorded during all of last month.

The top net buy over the past week was SOXL, an exchange-traded fund that tracks three times the daily return of a U.S. semiconductor stock index. Net purchases reached $260.13 million. KORU, which follows three times the daily return of an index tied to Korean stocks, drew $235.36 million. Quantum computing company IonQ posted net buying of $103.44 million.

Leveraged ETFs can deliver large gains during a rebound, but losses also widen when markets fall. Even as forced liquidations rise in South Korea's stock market, demand has persisted overseas for products that carry high volatility.

Bond buying also continued. Individual investors were net buyers of 1.1617 trillion won ($842 million) of domestic bonds from Oct. 1 to Oct. 16. That was below the 2.0967 trillion won ($1.52 billion) recorded from Sept. 1 to Sept. 14, but net buying still exceeded 1 trillion won this month. Total net purchases last month were 4.0225 trillion won ($2.91 billion), the highest since April 2024.

Buying also outpaced selling in U.S. bonds. Korean investors' net purchases of U.S. bonds totaled $1.21 billion from Oct. 1 to Oct. 15. After turning from net selling in June to net buying in July, they have remained net buyers for four straight months. Investors are seeking stability through bonds while also making aggressive bets through leveraged products.

Calls are also growing for stronger policy action to reduce market instability. Simply urging caution is not enough when retail investors are exposed to forced liquidations and mounting losses, a brokerage executive said. Authorities need to examine the causes of supply-demand imbalances and the market system, the executive added, and come up with measures to restore investor trust.