[Exclusive] Forcible Disposal of 800 Billion KRW Due to Credit Forced Liquidation in the First Half of This Year

[Forced Liquidation Fear] ① Credit Loans Increased to 20 Trillion Won... Forced Liquidation Triggered Sharp Decline Warning
Concerns Over Aftereffects of Secondary Battery Stock Supply Imbalance and Theme Stock Fever

As a bullish market centered on secondary battery stocks unfolds and 'debt investment' (borrowing to invest) increases, forced stock disposals (margin calls) are also on the rise. Margin calls occur when investors using securities firms' margin loans fail to maintain the collateral maintenance ratio due to a sharp drop in stock prices or cannot repay within the agreed period (margin loan term), prompting the securities firm to forcibly sell those stocks to avoid losses. Already, about 800 billion KRW worth of stocks have been forcibly sold in the first half of this year, spreading fear of margin calls.

Concerns Over Record High Margin Calls Reaching 2 Trillion KRW

The scale of margin calls was 1.8 trillion KRW last year. This year, as secondary battery stocks surged, many investors borrowed money to jump into the frenzy, increasing the margin loan balance to 20 trillion KRW. Consequently, the scale of margin calls is expected to reach a record high of 2 trillion KRW. The continued concentration of demand on secondary battery stocks, coupled with increased volatility causing sharp price fluctuations, is impacting the overall stock market.

On the 4th, Asia Economy analyzed data on 'Margin Loan Margin Calls' obtained through the office of Oh Ki-hyung, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, provided by the Financial Supervisory Service. The amount of margin calls conducted by 29 securities firms up to the first half of this year was 791.9 billion KRW. The margin call amount surpassed 1 trillion KRW in 2021 with 1.0976 trillion KRW and increased to 1.8082 trillion KRW last year as the stock market faltered. This year, it has already reached 800 billion KRW in the first half, raising alarm bells. Investors' complaints are also growing. Individual investors who jumped on the secondary battery bandwagon are increasingly anxious, suspecting 'stock price manipulation' and filing collective complaints with the Financial Supervisory Service.

Ultra-short-term margin trading called 'misu trading' results in margin calls if the unpaid amount is not repaid within two days. Its structure differs from margin loan margin calls. When stock prices plunge, the market impact of margin loan margin calls is much greater than that of misu margin calls due to the scale difference. If the stock value falls below the collateral maintenance ratio, forced sales occur at the lower limit price based on the previous day's closing price. Since orders are placed at the lower limit price, stock prices may fall further, potentially triggering a vicious cycle of margin calls.

The Secondary Battery Stock Frenzy as the Epicenter of the Surge in Margin Calls

The main reason for the increase in margin calls is the frenzy around secondary battery stocks, starting with the Ecopro group stocks. As Ecopro group stocks surged, buying interest including debt investment poured into POSCO group stocks and LS group stocks. The margin loan balance ratio for POSCO Steelion rose from 2.89% at the beginning of the year to 5.42% at the end of July. POSCO Holdings increased from 0.35% to 1.43%, and POSCO Future M from 0.84% to 1.42%. POSCO DX also expanded from 0.89% to 1.05%. Among LS group stocks, LS rose from 0.35% to 1.78%, LS Cable & System Asia from 1.56% to 2.28%, and LS Electric from 0.27% to 1.5%.

No Geun-chang, head of the Hyundai Motor Securities Research Center, said, "As secondary battery stock prices continued to rise, investors feeling 'FOMO (Fear of Missing Out)' who felt left out of the rally increasingly sold their existing holdings to buy secondary battery stocks," adding, "Since this is an investment psychology close to speculation, caution is necessary." Jeong Yong-taek, chief economist at IBK Investment & Securities, also analyzed, "During a period of poor economic conditions, secondary battery stocks were the only ones with clear catalysts, leading to concentrated demand."

There are forecasts that margin calls will reach 2 trillion KRW this year. Currently, the margin loan balance has soared to 20 trillion KRW. Margin calls increase alongside rising debt investment and growing stock market volatility.

Moreover, there is a possibility that debt investment will increase further. Ahead of next year's general elections, a theme stock frenzy may erupt. Lee Hyo-seop, head of the Financial Industry Division at the Korea Capital Market Institute, pointed out, "There is a high probability of secondary battery follow-up trading, and with the general elections approaching, a theme stock frenzy may occur from the second half of the year, so the scale of margin calls could reach 2 trillion KRW."

Potential Increase in Domestic and Global Stock Market Volatility

There is ample room for increased stock market volatility. Lee Hyo-seop said, "As we move into the second half of the year, domestic risks such as real estate project financing (PF) defaults, household debt, deterioration in the soundness of non-bank financial companies, and local government economic downturns are increasing, and concerns over slowing economic indicators from China raise the likelihood of increased global stock market volatility," adding, "If supply and demand worsen due to the impact of margin calls, the domestic stock market could be shaken." Han Ji-young, a researcher at Kiwoom Securities, advised, "Since the margin loan balance and short selling balance for secondary battery stocks have shown a sharp increase since the end of June, preparations should be made for the side effects of concentrated demand and margin loan margin calls." Lawmaker Oh Ki-hyung said, "The recent extreme volatility in secondary battery-related stocks raises concerns about investor damage," urging, "Financial authorities should strengthen monitoring, including understanding the short selling situation."

Meanwhile, among securities firms, those handling large amounts of margin loans experienced more margin calls. Kiwoom Securities had the largest scale of margin calls, with 935.3 billion KRW last year and 331.2 billion KRW this year. Next was Mirae Asset Securities, with 112.8 billion KRW in margin calls in the first half of this year. A Kiwoom Securities official explained, "This is simply due to the high market share in stock trading."