US Stock Market 'Debt Investment' Up 49% in One Year... Fastest Growth in 14 Years

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] As the U.S. stock market continues its upward trend, so-called 'debt investing,' where investors borrow money to invest in stocks, is also rapidly increasing.

On the 7th (local time), the Wall Street Journal (WSJ) reported, citing data from the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization on Wall Street, that the balance of 'debt investing,' including margin and credit transactions by U.S. investors, amounted to $814 billion (approximately 910.52 trillion KRW) as of the end of February.

This represents a 49% surge compared to a year ago, marking the fastest growth rate in 14 years since just before the global financial crisis in 2007.

The WSJ explained, "It appears to be the result of both retail investors and large investment firms increasing their debt investing."

Experts point out that the rapid increase in debt investing can cause a stock market bubble and inflict devastating losses on investors in the event of a sharp market decline.

Debt investors face margin calls (requests for additional collateral) when stock prices fall, and if they fail to meet these demands, they may be subject to forced liquidation by the brokerage firms from which they borrowed money, resulting in substantial losses.

Edward Yardeni, chairman of consulting firm Yardeni Research, said, "Debt investing amplifies bull markets and worsens bear markets. If the stock market rises further, debt investing will increase, and if some negative event occurs in the market, debt investing will be one of the factors driving stock prices down even more."