[Kospi 3000] Youth Debt Soars Alongside Stock Prices... 'A Dangerous Accompaniment'

Credit Loans for People in Their 20s and 30s Reach 89 Trillion Won in Q3 Last Year
Trend Similar to KOSPI Rise

Increasing Debt Investment Accumulates Risk
Lack of Clear Solutions Worsens the Problem

[Asia Economy Reporter Kim Eun-byeol] The KOSPI index surpassed 3000, marking a new milestone. However, the scale of debt has also increased accordingly, leading to evaluations of a "dangerous coexistence." In particular, the debt scale of those in their 20s and 30s, who led the phenomenon of "debt investment (bit-tu)," has been found to move in tandem with the rise in the stock index.

According to the Bank of Korea on the 6th, as of the end of the third quarter last year, the outstanding credit loans of the youth group (20s and 30s) amounted to 89 trillion won, an increase of 15.6% compared to the same period the previous year. Credit loans increased by an average of 11.4 trillion won per quarter from the first to the third quarter last year, of which the youth group accounted for 3.8 trillion won (33.6%).

In particular, the growth rate of credit loans among the youth last year showed a pattern similar to stock price trends. When stock prices rose, credit loans also surged sharply. The growth rate of youth credit loans in the first quarter last year was 12.3% compared to the same period the previous year, but in the second and third quarters, when Donghak and Seohak Ants began to join, the growth rates rose to 14.8% and 15.6%, respectively. This indicates that the debt scale rapidly expanded within the period. The KOSPI index fell in the first quarter, which was the early stage of the COVID-19 outbreak, but rose by 22.2% in the second quarter and 10.5% in the third quarter. In the first quarter, many loans were taken out to cover living expenses, but from the second and third quarters, it is highly likely that the loan funds were used for investment.

Of course, there was also the purpose of "young-kkul (pulling together all resources)" to purchase homes, but it is pointed out that a considerable number of loans were taken out for stock investment. Youth loans surged sharply during major public offering subscriptions such as SK Biopharm and Kakao Games.

Even looking at the growth rate of margin loans, which are transactions where individuals borrow some funds from securities companies to purchase stocks, one can sense the youth's debt investment phenomenon. As of September 15 last year, the outstanding margin loans for those under 30 reached 3 trillion won, nearly doubling compared to the end of 2019 (1.6 trillion won). In this case, if stock prices plummet, investors must provide additional collateral to securities firms.

Although debt investment is rampant and risks are accumulating, the solution remains elusive. This is because many companies and households took out loans to sustain their livelihoods due to the COVID-19 crisis, making it impossible to withdraw liquidity. This is also why investors continue to jump into risky assets despite bubble concerns. Bill Gross, famous as the "Bond King," evaluated, "Stock prices rose as real interest rates fell into negative territory under central bank leadership," adding, "There is a tendency for the market and economy to become overly dependent on government money printing."

Fiscal and monetary authorities have issued warning messages. Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki diagnosed in his New Year's speech at the '2021 Pan-Financial New Year Meeting' held the day before, "Although the financial market showed stability amid the COVID-19 crisis, concerns about the gap between the real economy and finance are growing." Bank of Korea Governor Lee Ju-yeol also expressed concern at the start of the new year, stating, "With high debt levels and a widened gap between finance and the real economy, even a small shock can greatly shake the market."