Margin loan balances in South Korea rose for a ninth straight trading session to surpass 33 trillion won, driven by a sharp increase on the KOSDAQ market.
Borrowed Money Flows Into KOSDAQ as Balance Climbs for Ninth Session
Margin loan balances stood at 33.33 trillion won ($24 billion) as of the 28th of last month, according to the Korea Financial Investment Association on the 1st. That was up 8.96 billion won from the previous session and marked a ninth consecutive session of gains since the 18th of last month.
Margin lending refers to money investors borrow from brokerages to buy stocks. The outstanding balance is widely watched as a gauge of leveraged investing by individuals.
The two markets moved in opposite directions. The balance on the main KOSPI market fell 92.75 billion won from the previous session to 26.39 trillion won, while the KOSDAQ balance grew 101.71 billion won to 6.95 trillion won.
The KOSPI closed at 6,788.88 that day, down 1.79% from the previous session, while the KOSDAQ ended at 838.41, up 0.76 point, or 0.09%.
Investor deposits at brokerages, considered cash waiting to enter the market, also approached 100 trillion won. Deposits totaled 99.81 trillion won as of the 28th, up 3.10 trillion won from the previous day.
Unsettled brokerage receivables, or amounts investors failed to pay by the settlement date, fell back below 1 trillion won to 930.30 billion won. Forced liquidations, in which brokerages sell shares after such payment failures, dropped to 4.80 billion won from 24.87 billion won in the previous session. The ratio of forced liquidations to receivables fell to 0.5% from 2.2%.
Rising Rates Add to the Burden on Leveraged Retail Investors
Retail investors face mounting costs as borrowing grows at the same time interest rates climb.
The Bank of Korea's Monetary Policy Board raised its base rate by 0.25 percentage point to 3.00% from 2.75% on the 27th of last month. It was the second straight monthly increase, following a hike in July.
The central bank cited economic growth that has proved firmer than expected on the back of strong exports and a recovery in domestic demand, as well as an inflation rate projected to stay above its target for a considerable period. Market rates typically follow the base rate higher. Analysts say margin lending rates charged to investors could also rise as brokerages' own funding costs increase.
Across 28 domestic brokerages, the average final rate on margin loans held for 61 to 90 days was 8.94%, while the average rate for loans held 16 to 30 days was 8.14%.
Concerns are growing that heavy borrowing combined with volatile markets could deepen losses for individual investors. If share prices fall sharply and investors cannot meet collateral requirements, brokerages may liquidate their holdings. In that case, investors would face both trading losses and interest costs. Analysts broadly agree that investors should limit heavy use of margin loans when volatility is high.
