Individual investors in Korea who jumped on the retail stock fad through borrowings could lose out more than they had invested as sale of their collateralized shares could reach 1 trillion won ($858 million) this year due to skidding stock prices.
According to the Financial Supervisory Service’s data obtained by Maeil Business Newspaper from Democratic Party lawmaker Lee Yong-woo, the amount of forced selling of margin accounts in the first eight month of this year totaled 700 billion won.
Equity purchases on margin credit currently stand at 25 trillion won, 100 times greater than the amount of uncovered short-term credit. Unlike uncovered short-term credit arrangement under which investors have three trading days to pay back their loans, margin credit have longer repayment period but typically accrues an interest of 10 percent per year. All shares bought on credit could be forfeited and sold back on the market if investors fail to meet the repayment terms.
Forced selling of margin buys peaked to 395.2 billion won in March last year when the benchmark Kospi crashed to below the 1500-level due to the COVID-19 outbreak. Nearly 100 billion won worth of stocks bought on credit were forfeited and sold back on the market in a single day, causing stock prices to fall further.
After remaining at 60 billion-90 billion won levels earlier this year, forced selling soared again to 134.5 billion won last month due to foreign selling spree at the local market. In August, foreigners net sold a record 6 trillion won, pushing down Kospi to near 3,000. Daily forced selling surged to 24.2 billion on Aug.18, 14.5 billion won on Aug.19 and 38.7 billion won on Aug. 23.
Market analysts forecast the combined forced selling is likely to top 1 trillion won by the end of this year if market continues to tumble. Last year, the total amount of forced selling reached 1.2 trillion won, FSS data showed.
By Moon Ji-woong and Lee Soo-min
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]