Japanese retail investors who borrowed money to buy Kioxia shares during a rally that sent the stock up nearly 400% are now trapped. The stock has halved from its peak, and a wave of margin trading deadlines starting late this year has raised concerns that hundreds of billions of won in paper losses could trigger heavy selling.
Halved From the Peak: Retail Paper Losses Reach 411 Billion Won
Kioxia closed at 18,735 yen on the Tokyo Stock Exchange on the 6th. That is roughly half the record high of 37,566 yen (about 320,000 won) hit in June, adjusted for a stock split.
The Nihon Keizai Shimbun, or Nikkei, identified the margin buying that retail investors piled up during the rally as the main weight on Kioxia's share price.
Kioxia shares climbed steeply in the first half of this year on expectations that expanding artificial intelligence investment would lift memory demand. The gains were concentrated between April and June, and the margin buying balance in the final week of June swelled to its largest level since the company's 2024 listing.
Much of that margin position remains in place even now, with the stock down by half from its peak. As of the 2nd, Kioxia's margin buying balance stood at 848.7 billion yen (about 7.22 trillion won) at acquisition cost. Based on book values and the share price at the time, Nikkei estimated retail investors' paper losses at about 48.3 billion yen (about 411 billion won), the largest among the Nikkei 225 constituents.
The gap between margin buying and margin selling is also wide. The margin ratio by value stood at 18.87 times, more than double the 7.96 times for the Tokyo Stock Exchange's Prime Market as a whole. That means a rebound in the share price could bring a flood of selling from investors trying to cut their losses.
'I Gave Up on Breaking Even': Focus Shifts to Limiting Losses
Losses are already snowballing. One retail investor in their 40s living in Tokyo, identified by Nikkei as A, bought 100 Kioxia shares on margin in June. When the stock fell, they bought 200 more in hopes of a rebound, a practice known as averaging down.
The stock moved the other way. Adjusted for the stock split, A's average purchase price was 31,000 yen a share (about 264,000 won), far above the closing price of 19,120 yen on the 5th.
Unrealized losses are approaching 11 million yen (about 94 million won). A margin trading deadline arrives in December.
"I'm hoping the price rises at least a little by then," A told Nikkei. "I gave up on recovering my principal long ago. I'd count myself lucky if I can get out with a loss of around 5 million yen [about 43 million won]."
Many investors are buying more as the price falls, as A did. On the 28th of last month, when Kioxia shares fell more than 4%, the margin buying balance rose 5.5%.
By contrast, on the 1st of this month, when the stock gained more than 5.5%, the margin buying balance fell 5.3%, and on the 2nd the balance slipped 0.2% as the stock rose about 1%. The pattern repeats: investors buy more when prices drop to lower their average cost, then sell when prices rebound to limit losses.
Six-Month Deadlines Begin Arriving Late This Year, but AI Hopes Persist
The bigger problem starts late this year. Under Japan's standardized margin trading system, which most retail investors use, positions must in principle be closed within six months. Investors who bought Kioxia shares on margin during the April-to-June surge therefore face settlement deadlines running from the end of this year into early next year.
Tomoichiro Kubota, senior market analyst at Matsui Securities, told Nikkei that deadlines for individuals who invested on margin during the surge fall between the year-end and early next year. If the share price does not recover enough, more investors will sell at a loss, adding further downward pressure.
Even so, retail investors are reluctant to give up on Kioxia because they expect earnings to improve as the AI market grows. The expansion of AI servers and data centers is seen lifting demand for the NAND flash memory used to store data.
Six of 10 brokerages tracked by Japanese financial data provider QUICK have set target prices above Kioxia's record high. Brokerages have continued to raise their earnings per share forecasts even after the share price fell, citing rising memory prices.
Separately from the earnings outlook, analysts say the accumulated margin positions will weigh on the stock for some time. Lu Ying, a portfolio manager at Fidelity Investments, said it is hard to buy aggressively even with confidence in medium-term earnings growth, because of the risk that retail investors will dump shares during sharp declines.
The immediate test is Kioxia's April-September results, due at the end of this month. Analysts say the results and outlook must meet the market's raised expectations for the stock to break through the overhang of margin positions and rebound.
