Retail investors' loan from securities firms reaches all-time high

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By Anna J. Park

While the benchmark KOSPI has continued to rally this month, the total amount in loans retail investors have borrowed from securities firms to invest in the local stock market has reached an all-time high.

According to recent data from the Korea Financial Investment Association (KOFIA), loans taken out by retail investors totaled 18.85 trillion won ($17.24 billion) as of Dec.11.

Around 50.3 percent of the loans were used to buy shares listed on the KOSPI market, while 49.4 percent went to the tech-heavy KOSDAQ, and the remaining 0.03 percent to other markets such as the KONEX. Early this month, the figure exceeded the 18 trillion won mark for the first time and continued to surge.

Basically, brokerage firms offer customers two types of loans. The first is where a securities firm lends to retail investors, while the financial companies keep the investors' stocks or bonds as collateral. The second type of loan is where a securities firm lends money for stock purchases based on the investors' credit rating.

As the nation's capital market law states that securities firms in Korea cannot lend money exceeding 200 percent of their own capital assets, local securities firms, including KB Securities, Samsung Securities and Hanwha Investment & Securities, have stopped lending both types of loans, as they temporarily maxed out their internally-set limit rules based on their capital assets.

Earlier in September, other major brokerages such as Mirae Assest Daewoo, NH Investment & Securities and Shinhan Financial Investment also halted providing loans temporarily, as the amount of such loans skyrocketed to 17 trillion won during autumn's stock market rally.

The amount of the loans slightly dropped in the following months to the 16 trillion won range, yet rose again, reaching 18.85 trillion won last Friday, an 11.5 percent increase in just a month since Nov. 9 when the amount stood at 16.67 trillion won. When compared to the stock loan's lowest point this year back in mid-March, the amount has tripled.

This month, data showed that retail investors picked up shares in biopharma and pharmaceutical companies the most with the loans, specifically Celltrion and Shinpoong Pharm on the KOSPI and Celltrion Healthcare and Seegene on the KOSDAQ.

On the KOSPI market, other large cap companies ― such as LG Electronics, Hyundai Motor, SK hynix, Lotte Chemical, Kakao, preferred shares of Samsung Electronics and Samsung Biologics ― were found to be most purchased by retail investors using loans from brokerage houses.

What is peculiar is that loan-leveraged retail investors so far mostly opted for the secondary KOSDAQ market for short-term investing as if scalping or swing trading, yet with the benchmark KOSPI's soaring rally recently, they increased their shares in the KOSPI market using the loans. During the past month, the amount of stock loans used to buy shares on the KOSPI increased by 1.105 trillion won, while that for the KOSDAQ rose by 922 billion won.