Volatility in Korea's stock market has grown extremely amid fallout from a U.S. and Israeli invasion of Iran. As the market sees swings of nearly 10% in a single day, the so‑called "debt investing," where investors borrow money from securities firms to invest, is hitting record highs day after day. In the market, there are concerns that the expansion of leveraged investing during sharp rallies and plunges could lead to large-scale forced selling and act as a "fuse" for Korea's stock market.
As of 2:23 a.m. on the day, the KOSPI was trading at 5192.41, down 393.78 (7.05%) from the previous session. Around 10:31 a.m., it plunged more than 8%, triggering a 20-minute trading halt under the circuit breaker. At the same time, the KOSDAQ was also down more than 5%, trading around the 1,000 level.
With Middle East–driven geopolitical risk expanding, KOSPI volatility has become extremely elevated. On the 3rd, the first trading day after the U.S. and Israeli attack on Iran, the KOSPI fell 7%, and on the 4th it crashed 12%, marking the largest drop on record. It then rebounded more than 9% on the 5th and closed flat on the 6th. Since then, intraday plunges of 8% have reappeared, with large swings repeating within a single day.
This is highly unusual compared with normal KOSPI volatility. Given that last year's average daily change in the KOSPI was about 0.24%, the recent double-digit moves are large relative to typical ranges.
Amid this widening market volatility, margin balances for borrowing from securities firms to invest are surging. Analysts say investors who believe they did not fully benefit from the rally that began late last year are expanding leverage under a "FOMO (fear of missing out)" mindset.
According to the Korea Financial Investment Association, on the 5th the balance of margin loans reached 33.6945 trillion won, again setting a record high. That includes 22.8152 trillion won on the main board and 10.8792 trillion won on the KOSDAQ. This is up 22.8% from Jan. 2 this year (27.4207 trillion won) and up 115% from Jan. 2 last year (15.6823 trillion won).
Receivables from agency trades, a form of ultra-short-term debt investing, are also on the rise. As of the 5th, those receivables stood at 2.4879 trillion won, a record high. In agency trades, investors buy shares first on the condition that they pay by the settlement date. Taking advantage of the domestic T+2 settlement cycle, investors anticipate a price rise, buy on receivables, and sell before settlement to realize gains.
The problem is that such leverage in a sharply rising and falling market can lead to forced selling (forced liquidation). In margin transactions, if an account's collateral ratio falls below 140%, the investor is required to post additional margin, and if that is not met, the holdings are forcibly sold at the market open on the next trading day. For agency trade receivables, if payment is not made by settlement, the forced selling process proceeds the next day (T+3).
Experts say the rapidly growing "debt investing" could act as a fuse for Korea's stock market. Yeom Dong-chan, a researcher at Korea Investment & Securities Co., said, "Margin balances that have risen to all-time highs can, with a lag, become a burden on the market." There is also concern that if forced selling floods the market, a vicious cycle of "forced selling → index decline → additional forced selling" could occur.
Some in the market, however, say abundant cash on the sidelines could partially absorb the shock. Investor deposits, which are retail investors' dry powder, are also rising quickly. According to the Korea Financial Investment Association, on the 4th investor deposits hit 130 trillion won, setting a record high.
Kim Hyun-su, a researcher at Sangsangin Investment & Securities, said, "It is true that market leverage is at an all-time high," but added, "Given the faster pace of deposit growth, there is a possibility that credit will play only a supplementary role in amplifying volatility during an uptrend, rather than triggering overheating."