"My Stocks Were the Only Ones Falling": Forced Liquidations Rise Even in a Bull Market

Despite the KOSPI's gains this month, forced selling has actually increased. As a handful of stocks, including semiconductors, surged sharply while most others remained sluggish, pressure from forced liquidations appears to have intensified. According to the Korea Financial Investment Association (KOFIA) on the 18th, the average daily amount of forced selling against unpaid settlement balances reached 28 billion won from the start of the month through the 15th. That is more than double the 12 billion won recorded in the previous month.
The amount is also higher than in March, when the stock market was shaken by the war in the Middle East and forced selling averaged 26.2 billion won per day. Compared with last year's average daily figure of 7.1 billion won, the current level is markedly high.
The ratio of forced selling to unpaid settlement balances rose to an average of 2.14% per day through the 15th of this month. It had surged to 2.11% in March, then fell to 1.13% last month, but is now climbing again.
Forced selling refers to a brokerage firm selling stocks at market prices to recover borrowed funds when an investor buys shares with borrowed money but fails to repay on time. Because KOFIA only tracks forced selling related to unpaid settlement trades, the overall scale is expected to be even larger if forced selling tied to Margin Loan is included.
Outstanding Margin Loan balances hit an all-time high of 36.5675 trillion won on the 15th. At the end of last year, the balance stood at 27.2865 trillion won. It first topped 30 trillion won in January and has continued to rise since then.
One reason forced selling has surged despite the market boom is polarization. The market has risen on the back of semiconductor and other Artificial Intelligence (AI)-related sectors, while other stocks have struggled, deepening the concentration of gains.
In fact, the KOSPI rose 13.55% from the start of the month through the 15th, but 710 of the 948 KOSPI-listed stocks, or 75%, fell during the same period. The KOSDAQ also failed to keep pace with the KOSPI. Over the same period, the Korea Securities Dealers Automated Quotations (KOSDAQ) fell 5.24%, and 1,386 of the 1,820 KOSDAQ-listed stocks, or about 76%, posted declines.
Brokerage analysts expect the market's polarization to deepen further. Junyeong Kim, a researcher at iM Securities, said, "A noisy macro environment actually strengthens the leading stocks," and added, "In the second half of the year, the impact of macro indicators such as interest rates is likely to take on a K-shaped polarization."
Because forced selling disposes of stocks below market price, investors face not only the risk of losing borrowed funds but also the risk of losing principal. In addition, when forced selling increases, a flood of shares at lower prices can heighten volatility near the bottom of the market.
A financial industry official said, "With market volatility having recently increased, sharp swings in stock prices could trigger a wave of forced selling," and warned that "forced selling can deepen declines and add to volatility."
[email protected] Seo Min-ji Reporter