38 Trillion Won in Margin Debt Returns, Raising Questions Over Whether It Will Fuel Gains or Trigger Volatility

[Financial News] As KOSPI has extended its gains, retail investors' margin trading has also begun to rise again. Margin loan balances have climbed into the 38 trillion won range, while outstanding unpaid settlement amounts, a short-term leverage indicator, have also topped 2 trillion won. With volatility surging to record highs, attention is focused on whether the growing use of borrowed funds will fuel the rally or become a trigger for a correction.
According to the Korea Financial Investment Association on the 30th, margin loan balances stood at 37.7616 trillion won as of the 26th, up about 10.5 trillion won from 27.29 trillion won at the end of last year.
Leverage funds are flowing especially into the KOSPI market. Margin loans on the Korea Exchange Main Board rose more than 70% from 17.126 trillion won at the end of last year to 29.3296 trillion won recently, while KOSDAQ loans fell from 10.1603 trillion won to 8.4319 trillion won over the same period. The analysis suggests that individual investors are channeling money into large-cap stocks, including semiconductors.
Short-term leveraged trading has also increased. Outstanding unpaid settlement amounts rose from 89.72 billion won at the end of last year to 156.32 billion won recently, and surged to 206.88 billion won on the 25th. These unpaid amounts refer to funds that were not settled on time and are a key short-term leverage indicator, as they can lead to forced selling if market volatility expands.
Market volatility itself remains elevated. The KOSPI 200 Volatility Index, which was in the 70s earlier this month, jumped to 97.99 shortly after the market opened the previous day, hitting its highest level since official data began in 2009, before closing at 96.94. With both margin balances and unpaid settlement amounts rising at the same time, there are concerns that leveraged funds could turn into selling pressure during a correction if volatility widens further.
Still, some argue that the rise in margin lending should not be read as an immediate sign of overheating. In a bull market, it is normal for investors' use of leverage to increase alongside stock prices, and customer deposits at securities firms are also rising. However, market participants say it will be important to watch fund flows closely, as profit-taking ahead of second-quarter earnings season could make the expanded use of credit trading a source of greater volatility.
Lee Sang-yeon, a researcher at Shinyoung Securities, said, "When liquidity indicators are considered comprehensively, the possibility of a sharp contraction in retail demand remains limited for now." He added, "After second-quarter earnings announcements, this appears to be a period when we need to assess not only earnings but also the sustainability of retail flows and market liquidity, as profit-taking and rising volatility may emerge once expectations fade."
Ultimately, the continuation of this rally depends less on the size of leverage itself than on whether earnings momentum, led by semiconductors, can continue. If results meet expectations, the increased use of margin trading could fuel the rally. If expectations weaken, however, it could combine with high volatility and deepen the decline.
Kim Dae-joon, a researcher at Korea Investment & Securities, said, "Thanks to various leverage products, the market is under selling pressure even from small shocks, and the sharp increase in margin lending compared with the past is a negative factor." He added, "In the end, for KOSPI to overcome supply-demand concerns and stage a rebound, a quick recovery in leading sectors is essential, and the revival of semiconductors, which make an outsized contribution in terms of market capitalization and operating profit, will be especially important."
koreanbae@fnnews.com Bae Han-geul Reporter