Leverage rises in Korean stock market amid expectations of year-end rally

SEOUL, December 09 (AJP) - South Korean retail investors have pushed margin loan balances above 27 trillion won for the first time, driven by growing expectations of a year-end “Santa rally."

As of Dec. 5, outstanding margin loans stood at a record 27.076 trillion won. Margin loans — funds borrowed from securities firms to purchase stocks — are widely seen as a barometer of leveraged retail trading activity. Stock-backed loans also increased sharply, rising by roughly 600 billion won between Dec. 1 and Dec. 5.

Bank lending to households has also accelerated. In November, unsecured credit loans at South Korea’s five largest banks rose by 1.14 trillion won, the largest monthly increase since July 2021, reflecting a shift of funds toward equity markets.

Market optimism has been bolstered by anticipation of the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) meeting on Dec. 10, with investors focusing on the possibility of an interest rate cut. Improved foreign investor flows have also supported share prices.

Analysts warn that while a sustained rally would limit risks, any sharp market correction could trigger significant losses for highly leveraged investors.

Signs of stress have already emerged. In November, forced liquidations by securities firms exceeded 30 billion won on Nov. 7, 18 and 25 as falling share prices eroded collateral values. Total forced sales for the month hit their highest level this year. Such liquidations occur when margin ratios fall below required thresholds, prompting brokerages to sell pledged shares.

* This article, published by Aju Business Daily, was translated by AI and edited by AJP.