[Weekly Market Outlook] Box Range Expected Amid Sharp Pullback... Average Daily Forced Liquidations of 17.5 Billion Won, What About 'Bitt'u'?

NH Investment & Securities Predicts 2200-2450 Box Range in October
"If 2270 Level Is Breached Downward, Possibility of Falling Below 2200"

Retail Investors Borrowing from Securities Firms Face Loss Risks in Correction
Over Past 10 Years, Daily Forced Sell Orders Exceeded 20 Billion KRW 24 Times, 17 Times This Year

Forced Sell Orders Exceeded 30 Billion KRW During Market Plunge on 23rd... Largest Since 2011

[Asia Economy Reporter Oh Ju-yeon] As growth stocks that have driven indices higher in global and domestic markets undergo price corrections, concerns are emerging about a possible entry into a bear market. However, the recent stock market decline is seen as a profit-taking process following the disappearance of events centered on growth stocks in August and September, and the domestic KOSPI is expected to continue fluctuating within a range-bound market for the time being. The existing forecasts that this is a retracement following a 'sharp rise' and that the market can continue to rise in the long term remain dominant.

However, individual investors who recklessly borrowed money to invest in stocks, known as 'debt investment' (bit-tu), are drawing attention as their ability to endure amid index fluctuations?their 'stamina'?could become a variable. This is because the daily forced liquidation scale exceeded 30 billion KRW last week, reaching the highest level in nine years. Individuals who dreamed of a so-called 'big hit' may suffer significant losses, so caution is required.

On the 23rd, the KOSPI index opened at 2,352.56, up 19.97 points (0.86%) from the previous trading day, showing a strong upward trend. Dealers are working in the Euljiro Hana Bank dealing room on this day. Photo by Moon Honam munonam@

On the 27th, NH Investment & Securities forecasted that the KOSPI in October could fluctuate within a box range of 2200 to 2450 points, recommending a strategy to adjust portfolio weights toward value stocks near the upper bound of the range and toward growth stocks near the lower bound.

NH Investment & Securities identified four key points to watch in October: ▲ U.S.-centered economic recovery ▲ short-term damage to growth stock expectations ▲ launch of ETFs tracking the K-New Deal Index ▲ increased interest in dividend stocks in Q4.

Researcher Oh Tae-dong of NH Investment & Securities said, "Looking at the strength of consumption recovery after the global COVID-19 pandemic by region, the U.S. is ahead," adding, "Exports to the U.S. in semiconductors, mobile phones, and automobiles are positive."

He continued, "Large growth stocks that led the market in the second half have corrected by 15-30% from their peaks, so the 2200 level is a time to consider bargain buying," and advised, "It is necessary to pay attention to internet platform companies, which have experienced relatively smaller declines during the correction period."

Regarding the launch of ETFs tracking the K-New Deal Index, he mentioned the need to examine smaller market capitalization stocks within the index and noted that interest in dividend stocks is likely to increase amid a weakening index uptrend.

Some analysts also pointed out that whether the KOSPI holds support at the 2270 level is crucial. If the index falls below this level, it could drop below 2200 points.

Lee Kyung-min, a researcher at Daishin Securities, said, "If support is secured at the 2270 level, a period of adjustment may occur, but if the level breaks down, a secondary price correction is inevitable."

Meanwhile, concerns are rising about 'debt-investing ants' who borrowed money from securities firms. After the credit loan balance borrowed from securities firms reached a record high, it still remains around 17 trillion KRW. As stock prices fall, forced liquidations (margin calls) are increasing, which could lead to greater losses for leveraged individual investors if the market declines further.

According to the Korea Financial Investment Association, the scale of stock forced liquidations on the 23rd reached 30.272 billion KRW, the highest in nine years. From March 2, 2010, to September 23 of this year, the daily forced liquidation scale exceeding 30 billion KRW occurred for the first time since August 9, 2011 (31.135 billion KRW).

Forced liquidation occurs when an investor fails to deposit additional settlement funds for stocks purchased on credit (margin trading), and the securities firm forcibly sells the stocks to recover the funds. Investors subjected to forced liquidation inevitably suffer huge losses overnight.

Additionally, the monthly average daily forced liquidation scale is at its highest level in 10 years. From the 1st to the 21st of this month, the average daily forced liquidation amount was 17.565 billion KRW, the highest since May 2009 (14.3 billion KRW).

The increase in average daily forced liquidation scale is due to the growing number of forced liquidations occurring daily amid the recent sharp stock market decline.

Moreover, over the past 10 years, daily forced liquidations exceeding 20 billion KRW occurred 24 times, with 17 of those happening this year. The surge in debt investment to record levels is interpreted as the forced liquidation scale increasing whenever the market wobbles.

An industry insider said, "The KOSPI has mostly resolved overheating since August, but the burden of credit balances still needs to be reduced," adding, "One reason the KOSDAQ has been more volatile is also related to this."