South Korea's KOSPI has fallen sharply this month, raising fears of forced liquidations. With margin loan balances topping 34 trillion won ($23.7 billion), brokerages are increasingly selling off investors' shares against their will, deepening losses for individuals who bought stocks with borrowed money.
The KOSPI, which peaked at 9,385 during trading on June 19, plunged to the 5,260 level in July — hitting 5,262.77 intraday on July 29 — before gradually rebounding through August and September to recover the 7,100 level, according to the Korea Exchange on the 15th. Expectations around artificial general intelligence (AGI) helped drive the recovery.
This month, however, the index has resumed its steep decline. After starting October at the 6,900 level, it fell for seven consecutive sessions beginning on the 6th and dropped to the 5,500 level in intraday trading on the 15th. Online forums have filled with angry posts: "Did a war break out?" "I've even given up on averaging down." "Why on earth is this happening?"
Against this backdrop, margin loans used to buy stocks have climbed back above 34 trillion won for the first time in three months since July. Margin loan balances stood at 34.25 trillion won as of the 13th, according to the Korea Financial Investment Association. Margin loans let investors borrow from brokerages to buy shares, amplifying gains when prices rise but magnifying losses in a falling market. Investors should be aware that if collateral value drops below a set threshold, they may face margin calls or have their holdings sold off.
Forced sales have also risen sharply. They totaled 59.35 billion won on the 13th. As recently as the 8th and 9th, forced sales had run at about 6.4 billion won a day, but they jumped nearly fourfold to 27.1 billion won on the 12th and then doubled again on the 13th. With the KOSPI falling sharply on the 15th as well, forced sales are expected to increase further.
When shares are liquidated this way, investors are forced to sell at low prices at times not of their choosing, incurring heavy losses. A flood of forced sales can also add downward pressure to the broader market.
Unsettled brokerage receivables, a form of very short-term leveraged buying, are also rising. They stood at 1.24 trillion won as of the 13th, up 16.7% from 1.06 trillion won on the 12th, the previous session. These receivables represent amounts investors have not fully paid by the settlement date after buying shares. The arrangement allows short-term use of funds, but if investors fail to cover the shortfall by the settlement date, brokerages can sell the shares.