KOSPI rout deepens retail losses, fuels forced selling fears
Summary
The KOSPI tumbled more than 7 percent Thursday in Seoul, deepening retail investors’ losses after a decline of over 5 percent two days earlier. Samsung Electronics and SK hynix led the slide, while investors faced difficult choices over whether to sell or await a rebound. Concerns about forced selling grew as margin loans exceeded 34 trillion won and forced liquidations surged.
Key Facts
- Outstanding margin loans reached 34.25 trillion won as of Tuesday, according to the Korea Financial Investment Association.
- Forced liquidations rose to 59.35 billion won on Tuesday from 27.1 billion won Monday and about 6.4 billion won per day on Oct. 8 and 9.
- Investors using borrowed funds may have to provide additional collateral or have their shares forcibly sold when collateral values fall below required thresholds.
- Large-scale forced sales can create a cycle in which falling prices trigger more liquidations and additional downward pressure on the market.
A stock ticker at Hana Bank's headquarters in Seoul shows the benchmark KOSPI trading at 5,475.03, down 8.88 percent from the previous close, Thursday. Korea Times photo by Shim Hyun-chul
Retail investors’ losses and unease are deepening as the KOSPI tumbled more than 7 percent Thursday, following a decline of over 5 percent just two days earlier.
The slide, led by chip giants Samsung Electronics and SK hynix, has turned paper profits into losses. Many investors now feel they have missed their chance to sell and are struggling to decide whether to cut their losses or hold on in the hope of a rebound, as frustration mounts and confidence in Korean equities fades.
"I don’t know where the market is headed anymore. I’ve stopped trying to lower my average purchase price by buying more shares," one investor wrote on an online stock forum.
Those who bought stocks with borrowed money also face growing concerns about repaying their loans.
Outstanding margin loans used to buy stocks topped 34 trillion won ($25 billion) for the first time in three months since July. The balance stood at 34.25 trillion won as of Tuesday, according to the Korea Financial Investment Association.
Buying stocks with funds borrowed from brokerages can boost returns in a rising market, but it also exposes investors to steeper losses during a downturn. If collateral values fall below the required threshold, investors may be required to provide additional collateral or have their shares forcibly sold by their brokerages.
As stocks plunged, forced liquidations surged to 59.35 billion won on Tuesday, more than double Monday’s 27.1 billion won, adding to the pressure on leveraged investors. The figure had stood at about 6.4 billion won a day on Oct. 8 and 9.
If large volumes of shares are forcibly sold at once, they can also put further downward pressure on the market, creating a vicious cycle in which falling prices trigger more liquidations and additional selling.
"KOSPI got hammered yet again today. Weren’t they saying 6,000 would hold? The National Pension Service can only prop it up for so long," another investor wrote on an online forum.
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