Leveraged trading hits record high
Rapid loss feared upon margin call
By Lee Kyung-min
Stock investors leveraged more than 13 trillion won ($10.7 billion) in July, a record-high figure that has doubled in only about three months, data showed Friday.
The strong equity market sentiment is driven chiefly by bio- and pharmaceutical-oriented shares of new coronavirus test kit makers as well as researchers and developers of treatments and vaccines amid the COVID-19 pandemic.
Yet investor caution is required because as much as gains may more than double in a bullish market, losses will be just as rapid in a bearish one because repeated failures to meet margin calls will lead to liquidation, wiping out the total investment in as little as a couple of trading days.
Brokerages make margin calls on investors to demand more funds or securities to the “margin account” whose balance has fallen below a certain level following losses. Repeated calls gone unmet will lead to liquidation whereby brokerages will sell shares in the account at the lowest possible price at the opening of the following trading day.
Korea Financial Investment Association (KOFIA) statistics showed that the amount leveraged as of July 15 was 13.41 trillion won, up 116.6 billion won from a day earlier. This is more than double the then-three-year low of 6.4 trillion won in March 25 when the volatile equity market tanked due to COVID-19 fears.
Of the total, about half, or 6.4 trillion won, was invested in the benchmark KOSPI, while the other half, or 7.1 trillion won, went into the secondary tech-heavy KOSDAQ.
Most investors over the past three months bought shares of firms whose corporate earnings are closely tied to the pandemic. Other than biopharmaceutical shares, other examples include those of firms in contact-free businesses such as delivery, logistics and digital service providers.
Firms that received substantial investment over the past month were medical treatment and vaccine developers, notably Celltrion, an Incheon-based biopharmaceutical firm, and its marketing and sales unit Celltrion Healthcare. The amount leveraged to buy the shares of KOSPI-listed Celltrion stood at 360.8 trillion won between June 15 and July 14, while that of KOSDAQ-listed Celltrion Healthcare was 290.3 trillion won.
The leveraged amount put into Celltrion jumped by 90.6 trillion won over the cited period, accounting for a quarter of the total. Also favored by leverage investors in the same period were shares of Samsung BioLogics and Shinpoong Pharm that had month-on-month jumps of 41.8 trillion won and 31.6 trillion won respectively.
Experts say the “risk-filled” move seeking quick gains stems mostly from ample liquidity backed by record-low interest rates and they warn that rash investment in the volatile market could lead to a rapid loss of investment.
“Market fluctuation could occur at the smallest inkling of bad news,” said Standard Chartered Bank Korea investment strategist Hong Dong-hee. “A sudden turn for the worse will mean a much faster-than-feared loss of the initial investment with no recovery. The risk associated with faster gains should not be overshadowed by the prospect of making quick money.”