Value context and insight. lkm@koreatimes.co.kr
Leveraged stock trading doubles since pandemic
Dealers work at their desks at Hana Bank in Seoul, May 28. Korea Times file
By Lee Kyung-min
By Lee Kyung-min
The amount leveraged by stock investors nearly doubled over the past two months, an indication that a growing number of people expect a market rally in the months to come.
Data from the Korea Financial Investment Association (KOFIA) showed Friday that the amount leveraged stood at 11.4 trillion won ($9.3 billion) as of June 3, almost double from 6 trillion won in late March when the volatile equity market tanked due to fears of COVID-19 burdening the economy.
The benchmark KOSPI tumbled to 1,457.64 on March 19, following a couple of sidecars issued by the Korea Exchange to cool down mass panic selling.
But with the leading bourse index recovering rapidly and steadily to 2,151.18 on June 4, up nearly 50 percent in two months, the leveraged amount surpassing 11 trillion won signals that investor sentiment has picked up to its level from shortly before the pandemic.
“Hopes are high the economic recovery will be sustained partly on the back of the central bank's key rate cut and the government's planned massive spending in the Korean New Deal, which would foster digital and green businesses,” said Eric Lee, chief strategist at Daishin Securities.
Equity market investor sentiment will remain strong for the time being, as evidenced by investor deposit increasing to over 43.6 trillion won as of the first week of June from 42.4 trillion won May 20. Funds held by cash management account (CMA) also soared to 55 trillion won from 50 trillion won in the first quarter of 2020. Throwing in 11 trillion won leveraged, this means about 100 trillion won remains readily available for equity market investment.
The increase in demand for the volatile investment came amid increased liquidity in the money market, notably what is categorized as M1, a measure of money supply alongside M2.
M1 includes very liquid cash, checkable deposits and traveler's checks whereas M2 money supply encompasses M1 plus less liquid savings, certificates of deposits and money market funds.
The M1 jumped 22 trillion won to 1,007 trillion won in May, following a 25-basis-point key base rate cut to a record low of 0.5 percent set by Bank of Korea among other factors.
“Investors can borrow money with low interest, and the cheap money is finding its way into the vibrant stock market,” Meritz Securities chief economist Stephen Lee said.
Also advancing the view on sooner-than-expected economic recovery is rising oil prices, which have shot up to the mid-$30s, a notable rebound after falling into the negative territory in April.
China's crude oil imports also jumped by 13 percent from April to May, closer to a record high. This raised expectation that the first country hit by the pandemic recovering quickly would give cause for hope to the rest of the world.
“Weeks of foreign selloff is expected to be more than offset by mass purchase of key firms' shares, helped by the U.S. dollar being stably depreciated against Korean won as well as the CBOE Volatility Index (VIX) dropping below 20,” Eric Lee of Daishin Securities added.