As the KOSPI keeps rallying sharply ahead of breaking through the 8,000 mark, overheating warnings are growing across the market. The size of so-called "debt investing," or borrowing to buy stocks, has swelled to an all-time high, while cash on the sidelines for short selling that bets on share declines also set a new record high. Analysts say expectations for gains and anxiety about a peak are both racing to extremes.
According to the Korea Financial Investment Association on the 13th, as of the 11th, margin debt for stock purchases stood at 3.59985 trillion won. Of that, 2.50461 trillion won was on the main board and 1.09524 trillion won was on KOSDAQ.
Margin debt for stock purchases is the amount investors borrowed from brokerages to buy shares and have yet to repay, a key gauge of the scale of "debt investing." With the KOSPI surging in a short span, investors driven by FOMO (fear of missing out) appear to be jumping into the rally even by borrowing money.
Margin debt for stock purchases spiked to 3.60683 trillion won on the 29th of last month, setting a record high before dipping briefly, but it has recently turned higher again and is nearing the all-time peak.
On the other hand, caution that "it has risen too much" is spreading fast in some corners. The balance of securities lending, seen as a leading indicator for short selling, came to 18.29675 trillion won as of the 11th, setting another record high. It has continued to increase even after topping 18 trillion won for the first time on the 6th.
Short selling is an investment technique in which an investor borrows shares and sells them first when expecting a price drop, then buys them back at a lower price to realize a profit. Securities lending is a transaction in which institutional investors and others lend out shares for a set fee; an increase in lending balances is interpreted as rising demand to bet on future share declines.
Cash on the sidelines around the market is also swelling quickly. Investor deposits stood at 13.69890 trillion won as of the 7th, an all-time high, and have since remained in the 13 trillion won range. Notably, about 1.2 trillion won flowed in over just two days, the 6th to 7th, when the KOSPI first broke through the 7,000 mark.
This contrasts with the mood in March, when the market plunged on the shock of the U.S.-Iran war and bargain-hunting money poured in. Back then, funds were largely aimed at buying the dip for a rebound, while recently, large amounts of chase-buying money have flowed in even as the index rises on expectations for further gains, stoking bigger overheating concerns.
Amid an unprecedented "bull frenzy," short-term trading is also rising fast. So far this month, the KOSPI's average daily market-cap turnover is 0.85%, jumping from 0.59% last month. Compared with last year's average of 0.48%, signs of overheating are clear. Turnover, the ratio of trading value to market cap, indicates more rapid changes of hands as the figure climbs. The reading suggests a surge in trades chasing short-term price gains.
Vice Governor Hwang Seon-o of the Financial Supervisory Service said at a recent briefing, "Rather than being optimistic about the entire market solely on the basis of index gains, it is time to examine the risks that lie behind the rise," adding, "Short-term trading not only amplifies market volatility but can also accumulate transaction costs that erode investment returns."
The KOSPI 200 volatility index (VKOSPI), known as the "Korea fear gauge," is also soaring again. The VKOSPI closed at 70.14 the previous day, climbing to its highest level since March, when the market was shaken by the fallout from the U.S.-Iran war.
The VKOSPI is an indicator that reflects expected future market volatility embedded in option prices and typically rises when the KOSPI tumbles. However, in a situation like now, where the market remains strong, a rising VKOSPI is interpreted as investor caution growing over the rapid short-term surge.
Han Ji-young, an analyst at Kiwoom Securities, said, "The very fact that the KOSPI jumped 18.5% in just five trading days this month shows the pace of gains was excessively fast and is a burden," adding, "If a volatility event such as a sharp drop in semiconductor stocks occurs in the U.S. market, investors should be prepared for the possibility that a wave of short-term profit-taking could hit the domestic market at once, making price swings far larger than expected."