Amid renewed concerns about a slowdown in Broadcom-driven artificial intelligence (AI) investment, margin investing funded by borrowing has swelled to an all-time high, raising fears of forced selling.
According to the Korea Financial Investment Association on the 7th, on the 4th the KOSPI margin loan balance stood at 28.0244 trillion won. It expanded by more than 3 trillion won in a month, hitting a record high. The combined margin balance for the KOSDAQ market was 37.7376 trillion won, the second-highest level after the all-time high of 38.0227 trillion won on the 29th.
The margin loan balance refers to the amount investors borrowed from securities firms to buy stocks that has not yet been repaid. It is a key gauge of individual investors' leveraged investing. Failed-settlement trades, an ultra-short-term credit transaction, are also rising quickly. On the 4th, unpaid balances from brokerage trades were 1.8293 trillion won, up 811 billion won from a month earlier.
The problem is that such leveraged investing can lead to forced selling during sharp market swings. In margin transactions, if an account's collateral ratio falls below 140%, investors are asked to post additional margin; if they fail to do so, their holdings are liquidated at the opening of the next trading day. For unpaid brokerage balances as well, if payment is not made by settlement, the next day (T+3) the forced-selling process begins.
In fact, after the KOSPI touched the 8,000 mark intraday on the 15th and then closed down 6.12%, forced selling surged. On the 20th, three trading days later, actual forced-selling amounts reached 145.8 billion won versus unpaid balances, with forced selling accounting for 7.6% of unpaid amounts. If forced-selling supply concentrates, some warn of a vicious cycle of "forced selling → index decline → additional forced selling."
In this environment, doubts about the sustainability of AI investment are resurfacing. U.S. semiconductor corporation Micron offered an outlook that fell short of market expectations, heightening concerns that the AI capital expenditure (CAPEX) upcycle could slow sooner than expected. On the 5th (local time), Nvidia fell 6% and Micron dropped 13%.
The macro backdrop is also challenging. U.S. nonfarm payrolls far exceeded market expectations, reviving the possibility of additional tightening by the Federal Reserve (Fed). U.S. Government Bonds yields remain elevated, adding pressure on equities.
A sharp rise in the won-dollar exchange rate is another key drag on the domestic stock market. On the 6th, the won-dollar rate broke through the 1,560 level, setting a new 17-year record high since the global financial crisis in March 2009. Seo Sang-young, managing director at Mirae Asset Securities, said, "Outflows of passive funds and selling by active funds could continue due to the surge in the exchange rate."
The initial public offering (IPO) of space and aerospace corporation SpaceX set for the 12th is another variable. Some in the market also warn that a large IPO could absorb global liquidity and spur foreign capital outflows.