[KOSDAQ Theme Stock Bubble] ① Increasing 'Debt Investment'... Concerns Over KOSDAQ-Originated Forced Liquidations

KOSDAQ Margin Loan Balance Drops from 11 Trillion to 8 Trillion Won
Margin Loan Ratio to Market Cap at 2.4%, Five Times KOSPI Level
Stocks with Margin Loan Ratio Above 5% Account for 11.7%

Despite securities firms' margin loan interest rates exceeding 10%, 'debt investment' (borrowing to invest) has not decreased significantly. In particular, margin trading has been concentrated on KOSDAQ theme stocks. This is interpreted as a result of increased risk asset preference sentiment following a rebound in stock prices this year.

However, concerns are rising that the KOSDAQ market, which experiences larger price fluctuations compared to KOSPI and has a higher ratio of margin loan balance to market capitalization, could see a flood of forced liquidations if stock prices fall. With listed companies consecutively warning of earnings shocks and the stock market fundamentals weakening, worries about forced liquidations are growing. If individual investors face forced liquidations, they are expected to suffer double hardships due to principal losses and increased debt burdens.

According to the Korea Exchange and the Korea Financial Investment Association on the 28th, the margin loan balance in the KOSDAQ market stood at 8.5776 trillion won as of the 22nd. Margin loans refer to loans provided by securities firms to investors using held stocks or cash as collateral, serving as an indicator to gauge the scale of 'debt investment.' The margin loan balance in the KOSPI market peaked in the mid-130 trillion won range in the third quarter of 2021 and has steadily decreased to 8.8405 trillion won as of the 22nd, maintaining a similar level since the fourth quarter of last year. In contrast, the KOSDAQ market peaked at the 11 trillion won level during the same period, declined, and has been increasing again this year.

In particular, when considering the ratio of margin loan balance to market capitalization, KOSDAQ is assessed as riskier than KOSPI. The ratio of margin loan balance to market capitalization in KOSPI (1,915.633 trillion won) is only 0.46%. In contrast, the ratio in the KOSDAQ market (366.038 trillion won) reaches 2.34%. This level is more than five times higher, raising concerns.

Experts point out that there is a high possibility of forced liquidations in the KOSDAQ market, where stock prices fluctuate frequently and margin loan balance ratios are high. As of the 24th, 191 stocks in the KOSDAQ market have a margin loan ratio exceeding 5%, accounting for 11.7% of the 1,623 listed stocks. In KOSPI, only 35 out of 944 stocks, or 4.3%, have a margin loan ratio above 5%. The margin loan balance ratio is calculated by dividing the margin trading purchase volume by the total number of shares. The higher the margin loan balance ratio, the greater the likelihood of forced liquidation. When investors who bought stocks on margin fail to maintain the collateral maintenance ratio (typically, the value of collateral stocks must be 140% of the loan amount), stocks are forcibly sold to cover the difference. If stock prices fall while the margin loan balance ratio is high, forced liquidations can flood the market, and since stocks are disposed of at the previous day's lower limit price, the price drop is even greater, requiring investors to exercise special caution.

Recently, in the KOSDAQ market, margin trading has concentrated on theme stocks such as the SM acquisition battle, artificial intelligence (AI), and Apple Pay, prompting calls for increased caution. Stocks whose prices fluctuate sharply based on themes rather than corporate fundamentals carry higher margin trading risks, which can accelerate further declines. As of the 24th, the stock with the highest margin loan balance ratio in the KOSDAQ market was SM Life Design (13.10%), a theme stock related to the SM acquisition battle. It was followed by Heerim (12.04%) and Seongwang (11.93%). Iruon (11.89%), classified as an Apple Pay-related stock, also had a high margin loan balance ratio.

Jae-hyuk Han, a researcher at Hana Securities, said, "Theme stocks have the advantage of explosive profits in a short time, but if market supply and demand do not support them or if another theme dominates the market, losses can occur instantly, making them a typical high-risk, high-return trade," adding, "The current market shows great uncertainty, so impulsive trading on theme stocks should be avoided."