[Forced Sale Fear] ② Record High Cumulative Forced Sales of 1.2 Trillion Won in July

Outstanding Credit Loan Balance in July Hits 20 Trillion Won with 700 Billion Won in Unsettled Payments
Attention on the Direction of Investment Funds in Secondary Battery Stocks and Investor Deposits

The secondary battery stocks, which have led the domestic stock market, have recently shown extreme volatility, causing the market capitalization worth tens of trillions of won to fluctuate repeatedly. Amid this turmoil, the increase in credit transaction loan balances and unsettled transactions is becoming a 'detonator' for market instability.

Unpaid Amount After Borrowing Money to Buy Stocks Reaches 20 Trillion Won

According to the Korea Financial Investment Association on the 4th, the credit transaction loan balance exceeded 20 trillion won, recording 20.0597 trillion won as of the 25th of last month. This means that investors borrowed money from securities firms to buy stocks but have not repaid over 20 trillion won. Compared to January this year, it increased by about 27%. It is the first time since April that the credit loan balance has exceeded 20 trillion won.

Looking at the trend of credit loan balances over the past two years, the largest scale was 25.654 trillion won on September 13, 2021. At that time, in a liquidity-driven market due to low interest rates, many investors borrowed money as stock prices rose. However, as domestic and international stock markets entered a downward trend last year, leveraged investing declined. The credit loan balance decreased to about 18 trillion won in July last year and remained in the 15 trillion won range until January this year. Then, with the frenzy of investment in secondary battery stocks, the credit loan balance surged in a V-shaped pattern.

Investors using borrowed money to invest face a triple hardship of stock price declines, interest burdens, and the risk of forced liquidation. Especially, interest burdens have increased significantly compared to previous years due to the rise in interest rates. A securities firm official expressed concern, saying, "Although leveraged investing increased during the COVID-19 pandemic, that was a low-interest-rate era, but now the situation is different."

Unsettled payments are also concerning. Unsettled transactions involve depositing only part of the purchase price with the securities firm when buying stocks. If the unsettled amount is not paid within two trading days, the purchased stocks are forcibly liquidated. Since the 6th of last month, the scale of unsettled transactions has not fallen below 500 billion won per day. On the 28th, it recorded 773.3 billion won. This contrasts with the beginning of the year when it fluctuated around 200 billion won. Although it slightly decreased to 729 billion won at the end of last month, it still remains in the 700 billion won range (as of August 2nd, it decreased again to the 500 billion won range). This is interpreted as the spread of FOMO (fear of missing out) psychology, driven by the frenzy of investment in secondary battery stocks.

In particular, the amount forcibly liquidated due to failure to repay unsettled payments has also increased significantly. On the 28th of last month alone, forced liquidation amounted to 68.4 billion won. The forced liquidation amount for July was 1.1963 trillion won, an increase of 215.3 billion won (21.95%) compared to the previous month (981 billion won). This is the highest record since related statistics began in April 2006. A securities firm official said, "An increase in forced liquidation signals the need to be cautious about market corrections or sharp declines."

Whether investors using borrowed money will laugh or cry depends on whether the supply-demand imbalance in secondary battery stocks is resolved and the direction of funds and standby capital in the stock market derived from this. Market experts express concern that, as the supply-demand imbalance in secondary battery stocks remains, rollercoaster-like market conditions may repeat.

Meritz Securities Research Center analyzed past supply-demand conditions in the domestic stock market and found that the proportion of sectors with concentrated supply-demand in total trading volume often peaked around 30%. The shipbuilding sector, which led the market from 2004 to 2007, accounted for about 20% of KOSPI trading volume, and the pharmaceutical sector, led by Celltrion from 2014 to 2017, peaked at about 30% of KOSDAQ trading volume.

However, secondary batteries have far exceeded 40%. This year, the trading volume of the secondary battery sector recorded about 30% of the combined KOSPI and KOSDAQ trading volume in January and April, and recently soared close to 50%. Jinhu Lee, a researcher at Meritz Securities, explained, "As of July 25, Samsung Electronics' market capitalization (common stock) was 418 trillion won, and the combined market capitalization of secondary battery companies reached 472 trillion won. Since 2000, no single theme in the domestic stock market has surpassed Samsung Electronics' market capitalization."

Expecting a Highly Volatile Market... Time for a Break

With this supply-demand concentration and the added controversy over short selling, even experts find it difficult to predict the direction of secondary battery stocks. Kyobo Securities expects the market this month to remain highly volatile due to the tug-of-war between supply inflows driven by FOMO and short-selling investors, recommending a pause. Kim Hyung-ryul, head of Kyobo Securities Research Center, advised, "Investors who have been chasing the rapidly fluctuating stock prices should take a moment to cool down. Instead of following short-term supply-demand, they should calmly examine the fundamentals of industries and companies."

Shin Seung-jin, senior researcher at Samsung Securities, analyzed, "Currently, investor psychology and program trading supply-demand have a greater influence than fundamentals." He added, "Since the price volatility of stocks that have risen significantly on growth expectations is expected to increase further, careful stock selection and timing of trades are necessary."

Another variable in the second half of the year is the direction of standby capital in the stock market. Currently, standby capital is at its highest level. Investor deposits were recorded at 58.199 trillion won as of the 27th of last month. This is the largest scale in a year since July 1 of last year (58.73 trillion won). Investor deposits refer to money left in securities accounts to buy stocks or money not withdrawn after selling stocks.

The theme stock frenzy that may blow up ahead of the general election is also a variable for the stock market. In the domestic stock market, theme stock frenzies often occur before presidential or general elections. A securities firm official expressed concern, saying, "If funds concentrated in secondary battery stocks or standby capital focus on theme stocks, the stock market could become volatile."