[Column] Encouraging Debt Investment Amid Stock Market Turmoil Is Unwise

"There is a frenzy of thematic stock investments, and securities firms are aggressively expanding margin loans, which could increase debt-financed investing (debt investment), so please actively manage this." On the 8th, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), warned securities firms to restrain the expansion of margin loans.

Although this may spark controversy over government intervention, the FSS chief's direct warning stems from concerns about the damage to individual investors as well as the overall stability of the stock market. With the already high volatility these days, if stock prices fluctuate and forced liquidation volumes pour in, all investment participants will inevitably suffer losses. Following secondary batteries, speculative 'chasing of skyrocketing stocks' centered on superconductors and others has become rampant, pushing the balance of margin loans beyond 20 trillion won.

Experts particularly believe that the secondary battery craze has absorbed debt-financed investment funds. Governor Lee also viewed that securities firms' margin loans play a significant role in the buying spree of secondary battery stocks. Most of the top stocks by margin loan balance are related to secondary batteries.

Some securities firms, having identified signs of abnormal overheating, acted swiftly. Samsung Securities, Korea Investment & Securities, Shinhan Investment Corp., and others have restricted margin loans for the 'Ecopro Trio' (Ecopro, Ecopro BM, Ecopro HN). However, among the top 10 securities firms by equity capital, the other seven did not restrict margin loans for the Ecopro Trio (though Daishin Securities, NH Investment & Securities, etc., raised margin requirements to slightly increase the 'debt investment threshold').

Domestic securities firms recognize the price uncertainty of these stocks to the extent that they have abandoned publishing reports on Ecopro and others. Especially due to the concentration on secondary battery stocks, price volatility has increased. Nonetheless, providing margin loans as usual is tantamount to neglecting investor protection. It inevitably appears as if they intend to profit from interest on margin loans. The total interest income from margin loans for 29 domestic securities firms in the first quarter of this year was 358.1 billion won, an increase of 7.9 billion won (2.25%) compared to the fourth quarter of last year. The total interest income earned last year reached 1.5969 trillion won.

Whether investing with spare money or borrowing to invest is an individual's freedom. The securities firms' argument that they provide margin loans because there is investor demand is not wrong. Securities firms are legitimate businesses and naturally need to generate profits to exist.

However, it is undesirable for securities firms to encourage debt-financed investing at a time when aftereffects of such investments are a concern. As a participant in the stock market, they have a responsibility to protect investors. Who would welcome securities firms that prioritize interest income over investor protection?