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| An electronic board set up at a dealing room of Hana Bank headquarters in Seoul shows a rise of the benchmark KOSPI on Monday morning. Yonhap |
By Lee Min-hyung
Leveraged investments in the local stock market are on the rise again in tandem with the recent bullish market sentiment here, data showed Monday.
According to data from the Korea Financial Investment Association, the outstanding credit transaction loan amount in the benchmark KOSPI and secondary Kosdaq reached 16.11 trillion won ($13 billion) as of Jan. 26. This is a slight increase from Jan. 11 when the figure amounted to 15.81 trillion won.
A credit transaction loan is a loan offered by securities firms to customers by taking their stocks as collateral.
The loan amount soared to more than 25 trillion won in August 2021 on a stock investment boom. But the stock market has since fallen into a downward spiral, as the market abruptly turned bearish at the beginning of 2022 due to escalating financial uncertainty triggered by global monetary tightening and key rate hikes.
After the U.S. Federal Reserve and the Bank of Korea enacted unprecedentedly rapid and hawkish monetary policies throughout 2022, investors in the Korean stock market reduced their pattern of leveraged investments last year.
But with the main bourse showing unexpected signs of recovery this year, investors look to expand their stock-leveraged investments here. The KOSPI started at around 2,250 points on the first trading day of 2023, and recovered to around 2,500 points as of Jan. 27, boosted by expectations for an end to the rate hike cycle here and abroad.
A rosy outlook on the stock market also attracted more investors to expand their leveraged investments.
"Expectations are rising that the Fed will put an end to the ongoing cycle of rate hikes in March after the authority possibly takes a baby step of increasing its key rate by 25 basis points during the upcoming rate-setting meeting, as a series of economic indexes display signals that the pace of inflation is slowing down and recession risks are on the rise," said Park Sang-hyun, an analyst at Hi Investment & Securities. "Coupled with hopes for China's economic normalization, foreign investors' recent buying momentum in the Asian stock market will remain in place for the time being."
But the high interest rate for credit transaction loans is causing concerns. The average interest rate for loans from Korea's 10 major securities firms reached around the mid-9 percent range. If investors took out the loans and the stock price of their investments falls, their collateralized stocks will face forced liquidation.
