The number of retail investors who still owed money to their brokerages even after their shares were sold off has risen sharply in South Korea, as leveraged investing runs at record levels. The unpaid principal left after forced sales more than quintupled in a year.
Retail investors were left with a combined 37.79575 billion won in unpaid principal immediately after forced sales in the first seven months of this year, according to data that the office of Rep. Park Dae-chul of the People Power Party, a member of the National Assembly's National Policy Committee, obtained from the Financial Supervisory Service. The figures cover the 10 largest brokerages by equity capital — Korea Investment & Securities, Mirae Asset Securities, NH Investment & Securities, Meritz, Samsung Securities, KB, Kiwoom Securities, Hana, Shinhan Investment and Daishin — and were released on the 7th.
That is about 5.1 times the 7.45588 billion won recorded a year earlier.
Unpaid principal arises when an investor who bought stocks with money borrowed from a brokerage is forced to sell those holdings after prices fall and the proceeds fall short of repaying the loan.
The figures add up all amounts recorded immediately after forced sales. The debt actually outstanding can fall later if investors put in more cash or brokerages recover the claims.
Unpaid Principal More Than Quintuples in a Month as Stocks Slide in June
By month, unpaid principal fell from 5.50132 billion won in January to 1.99621 billion won in April and 2.48552 billion won in May, then surged to 13.11467 billion won in June. Another 8.8164 billion won followed in July. The June jump reflected large-scale forced selling as the market corrected sharply over a short period, analysts said.
The KOSPI, which began the year around 4,000, climbed to as high as about 9,385 on June 19 before falling back quickly. Investors who had piled into stocks with borrowed money during the rally were caught by the sudden drop, triggering a wave of forced sales, and some could not repay their debts even after their shares were sold.
Margin loan balances hit a record 38.6328 trillion won on June 24, according to the Korea Financial Investment Association. That marked the peak of borrowing to buy stocks.
A total of 7,251 accounts recorded unpaid principal in the first seven months of this year, 2.3 times the 3,136 a year earlier. The count differs from the number of investors, since a single account can record unpaid principal more than once.
By brokerage, Kiwoom Securities accounted for 20.68504 billion won, or 54.7% of the total. Mirae Asset Securities followed with 6.12047 billion won and Samsung Securities with 4.82509 billion won.
Leveraged Bets Persist After Forced Sales, With Unsettled Balances at a Record
Retail investors have shown little sign of scaling back leveraged bets despite the shock of forced sales.
Unsettled purchase balances at the 10 brokerages, which can lead to forced sales, topped 1 trillion won for the first time in May at 1.1953 trillion won and rose to 1.351 trillion won at the end of July, another record high.
Kiwoom Securities again accounted for about half of that at 650 billion won. Mirae Asset Securities stood at 185 billion won and Korea Investment & Securities at 183.5 billion won.
With market volatility rising and unsettled balances at record levels, some warn that forced sales and unpaid debt could surge together if share prices swing sharply again.
