Margin loan balances on Samsung Electronics (005930.KS) and SK hynix (000660.KS) both declined on the first day brokerages began managing the concentration of margin lending in individual stocks, industry data showed. Brokerages have been cutting margin trading limits and restricting new purchases one after another, a shift expected to weigh on demand for large-cap chip stocks.
Samsung Electronics' margin loan balance stood at 20,466,119 shares based on trades on the 19th, when the concentration rules took effect, down 208,772 shares, or 1.01%, from 20,674,891 shares on the previous trading day, the 16th, according to the financial investment industry on the 22nd. SK hynix fell to 2,684,159 shares from 2,727,080 shares over the same period, a drop of 42,921 shares, or 1.57%.
Demand for new leveraged buying also eased in part. New margin purchases of SK hynix totaled 333,127 shares on the 19th, down 12.6% from 381,141 shares the previous trading day. Samsung Electronics moved in the opposite direction, rising 3.3% to 1,836,266 shares from 1,778,258 shares over the same period.
Leveraged investing is expected to shrink further as brokerages tighten margin trading restrictions on large-cap chip stocks. Shinhan Securities (008670.KS) said on the 21st that it would gradually cut its per-stock margin loan limit to 300 million won from 2 billion won starting on the 26th if margin loan concentration in Samsung Electronics and SK hynix exceeds the threshold. Hana Securities and Meritz Securities (008560.KS) had already restricted new margin purchases of the two stocks, while Mirae Asset Securities (006800.KS), Korea Investment & Securities and KB Securities also lowered margin loan limits this month.
The measures follow a voluntary margin lending management plan the Korea Financial Investment Association introduced on the 19th for the country's 10 comprehensive financial investment business operators. The core requirement is to keep the margin loan balance in any single stock below 15% of a brokerage's total margin loan balance. Regulators are also considering tightening the threshold to 10%.
Margin loan balances have been falling quickly across the broader market. Total margin loans stood at 30.271 trillion won ($21.2 billion) as of the 21st, down 3.1191 trillion won, or 9.3%, from 33.3901 trillion won at the end of last month, according to the association.
The restrictions are intended to curb excessive leveraged investing in individual stocks and reduce the risk of forced liquidations. Some in the market, however, read the move as further weakening retail investors' buying power at a time when trading activity is shrinking and margin loan balances are already declining. "There is a need to prevent margin loans from becoming excessively concentrated in particular stocks, but when margin trading restrictions widen at a time like this, when trading has contracted, retail investors' buying power is reduced even further," an official in the financial investment industry said. "In particular, with foreign selling running strong, this could weigh on demand for large-cap chip stocks, where retail investors account for a high share of trading."