The amount of money that individual investors borrowed to buy stocks (margin loans) once again hit a year-to-date high. As the domestic stock market rose sharply, it means more aggressive investors are jumping on the rally. So-called "debt investing" has been concentrated in Samsung Electronics and SK hynix, whose share prices have surged recently. As their share prices hit record highs, debt investors likely booked considerable profits.
However, some warn that if share prices plunge, losses from debt investing could grow, so caution is advised when using margin loans.
According to the Korea Financial Investment Association on Oct. 18, margin loans in the domestic stock market totaled 23.8288 trillion won on Oct. 15. In the main board they were 14.4838 trillion won, and in the KOSDAQ market 9.3450 trillion won, with "debt investors" hitting year-to-date highs in both markets.
A margin loan is a loan that an investor receives from a brokerage to purchase stocks. During market booms, it is considered one of the investment strategies to seek additional revenue by using leverage beyond one's held asset. However, if the share price of a stock purchased with a margin loan falls below the collateral ratio, there is a risk of forced liquidation, or "margin call sell-off."
As the domestic market has continued its rally since May, the size of margin loans has steadily increased. At the end of last year, margin loans stayed in the 15 trillion won range, but grew to 18 trillion won in June. In July, they jumped to the 21 trillion won range, and on Sep. 26 they even reached a year-to-date high of 23.5378 trillion won.
After that, margin loans decreased slightly, but increased again as the KOSPI index hit fresh highs day after day following the Chuseok holiday. After hitting a year-to-date high on Oct. 15, they edged down to 23.8288 trillion won on Oct. 16, but are still approaching the all-time high of 25.6540 trillion won on Sep. 13, 2021.
An official in the financial investment industry said, "As expectations for a market rise and the prolonged boom have drained investors' available funds, leverage investing is increasing," adding, "As the market boom is expected to continue for the time being, the scale of debt investing is likely to grow further."
Debt investors are concentrating their bets on semiconductor stocks that have surged on the artificial intelligence (AI) boom.
Over the past month (Sep. 16–Oct. 16), the stock with the largest margin loan balance on the main board was Samsung Electronics (322.2 billion won). Next were SK hynix at 149.6 billion won, NAVER at 79.8 billion won, Doosan Enerbility at 51.3 billion won, and Kakao at 44.9 billion won.
Although margin loans carry a high annual interest rate of more than 5%, the stocks where debt investing has been concentrated have been strong, so these investors likely generated considerable revenue.
During this period, Samsung Electronics rose 27.71% from 76,500 won to 97,700 won, and SK hynix also climbed 36.71% from 331,000 won to 452,500 won. NAVER and Doosan Enerbility gained 11.32% and 42.35%, respectively, over the same period. However, Kakao fell 8.4%.
By contrast, investors who used debt investing in the KOSDAQ market are unlikely to have made large profits. The stock with the largest margin loan balance on KOSDAQ was Alteogen (98.5 billion won), but Alteogen fell 12.11%.
Experts have issued warnings about excessive leverage investing. They say it is necessary to set investment strategies that consider repayment capacity, as price corrections are possible.
Korea Exchange and the Korea Financial Investment Association said, "Margin trading has increased significantly, especially among young adults and people in their 50s and 60s," adding, "We urge caution against excessive leverage transactions that exceed repayment capacity."