Brokerages are reopening the door to "debt-fueled investing" as they resume margin lending services. After curbing margin trading last month when the Middle East crisis heightened market volatility, securities firms this month appear to have judged that conditions have returned to a manageable level.
According to the financial investment industry on the 16th, NH Investment & Securities resumed margin loans and securities-backed lending on the 14th after a temporary suspension on the 3rd. With more internal room under its margin-lending limit, the firm moved to normalize services.
Korea Investment & Securities Co. also reopened margin loans and securities-backed lending on the 1st, and KB Securities on the next day, the 2nd, eased its margin-purchase cap from a 500 million won per-customer buying limit to each customer's contracted limit. However, the three securities firms said the services could be restricted again if limits are exhausted after the restart.
The market view is that while the absolute size of margin trading remains high, its share relative to total market capitalization has declined, suggesting a move out of an overheated phase.
According to the Korea Financial Investment Association, margin loan balances stood at 33.2824 trillion won as of the 14th. That is a slight decrease from the record high of 33.6945 trillion won on the 5th of last month, but still higher than at the start of the year (27.4207 trillion won). In particular, the KOSPI balance is 23.0406 trillion won, near an all-time high.
However, the margin balance ratio has fallen. The margin balance ratio is an indicator of margin trading as a share of market capitalization, showing how much debt-funded investment is piled up in the market. A higher ratio means more active leveraged investing.
The KOSPI margin balance ratio was 0.71% as of the previous day, down from 0.73% on Jan. 2, 0.76% on Feb. 2, 0.78% on Mar. 3, and 0.72% on Apr. 1, each being the first trading day of the month. The KOSDAQ ratio shows a clearer downtrend over the same period: 1.57%→1.57%→1.60%→1.44%→1.40%.
As rising share prices have expanded total market capitalization, the intensity of debt-fueled investing appears weaker in ratio terms, unlike the absolute balance size. Through the previous day this year, the KOSPI and KOSDAQ indexes rose 45% and 24%, respectively, and total market cap increased 1,658 trillion won (42%) to 5,642 trillion won from 3,984 trillion won.
While the Financial Supervisory Service is checking potential "debt-fueled investing" factors across all financial sectors, not just at brokerages, it sees the current level of margin lending as having a limited impact on the market. Lee Chan-jin, the FSS governor, said at a press briefing in late last month that "since last year, the share of low-collateral accounts, which carry relatively higher forced-sale risk, has been declining" and that "the overall soundness of margin loans and securities-backed lending is relatively healthy."
Still, some remain wary of margin-trading risks tied to future market volatility. Yeom Dong-chan, an analyst at Korea Investment & Securities Co., said, "Historical data show that falling stock prices led to declines in margin balances," adding, "Margin balances that have climbed to all-time highs could return as forced sales with a lag depending on market shifts, posing a burden."