As more individual investors aim for high revenue by using margin financing as leverage, brokerage houses are showing diverging strategies on margin trading. Some brokerages have even restricted margin loans for large-cap stocks on the main board to block so-called "debt investing" (investing with borrowed money), while others have lowered the threshold for margin trading and moved aggressively as demand for leverage has grown.
According to the financial investment industry on the 6th, Korea Investment & Securities on the 4th raised the initial margin rates for SK hynix, Hyosung, and LS ELECTRIC to 100% and changed them to stocks ineligible for margin loans. The three stocks were designated as investment caution issues for the day on the 4th after their share prices surged recently.
Mirae Asset Securities the previous day uniformly changed Hyundai Rotem and Rainbow Robotics to "F" in its margin trading classification. With the classification moved to group F, new margin loans and maturity extensions for these stocks were restricted. On the 3rd, Mirae Asset also moved 10 stocks, including POSCO FUTURE M, Hanwha Aerospace, Kia, Samsung SDI, Yuhan Corporation, LG CHEM, and Doosan, to group F.
Shinhan Investment & Securities on the 3rd also said Hanwha was flagged by its internal margin trading restriction monitoring criteria and classified it as ineligible for margin loans.
Typically, stocks for which brokerages restrict margin loans are mid- and small-caps. Because stocks with smaller market caps often see sharp price swings driven by speculative money, firms tend to limit margin trading to protect investors.
However, as the KOSPI index broke through 4,200 on the 3rd to hit a record high and showed strength, large caps such as SK hynix, Doosan Enerbility, and Hanwha Ocean also saw wider price swings. With individual investors' "debt investing" pouring into these names, some brokerages raised the bar for margin.
Conversely, as demand for margin trading increased, some brokerages eased credit standards and actively expanded margin supply. They can expand their client base while also earning fee income.
Toss Securities the previous day eased the margin classification for SK hynix and LS ELECTRIC from F to D and lowered the margin rate from 100% to 50%. Although there were large caps such as Hyundai Motor and Korea Investment Holdings for which the margin threshold was raised, the firm eased margin trading criteria for about 10 stocks compared with before.
Kiwoom Securities is also maintaining the initial margin rates for SK hynix and LS ELECTRIC at 20%, unchanged from before. For other names that other firms have blocked from new margin loans—such as Kia, Samsung SDI, Hanwha Aerospace, and LG CHEM—it is applying a 20% margin rate and classifying them in margin loan group A.
From an investor's standpoint, the broader the margin trading allowance, the more actively leverage can be used. But investors should be wary of rushing into reckless "debt investing" just because margin supply is ample.
According to the Korea Financial Investment Association, as of the 4th of this month, outstanding margin financing stood at 2.55118 trillion won, near the record high of 2.56540 trillion won set in Sep. 2021. On the 31st of last month, outstanding margin financing on the main board (1.58173 trillion won) and the KOSDAQ market (970.96 billion won) each hit a record high for the year.
While the rally in Korea's stock market, including the KOSPI hitting a record high, has been a factor, excessive margin trading can be a "double-edged sword." In particular, if individual investors fail to repay borrowed funds on time, it can lead to forced selling, causing losses to snowball.
Experts advised investors to understand each brokerage's margin trading policy and invest according to their risk profile, while managing risks on their own.
A securities industry official said, "Differences in credit policies among brokerages also reflect differing market views and strategies," adding, "A prudent investor needs to use leverage at a manageable level."