"Retail investors who increased purchases near the peak" July forced liquidations totaled 43.868 billion won

[Financial News] This year's purchases of domestic stocks by retail investors were concentrated in May and June, when the KOSPI Composite Index rose sharply. As the stock market underwent a correction in July, forced liquidations increased to their highest level since records began. In particular, retail investors who bought large amounts of stocks in May and June faced large-scale forced liquidations during the market's plunge in July.
According to the Korea Exchange (KRX) on the 27th, retail investors had net purchased 81.3301 trillion won in domestic stocks from the first trading day of this year through the 23rd, the day before the Chuseok holiday.
By month, they initially recorded net sales of 9.6552 trillion won in January, before making net purchases of 3.4105 trillion won in February and 32.8419 trillion won in March. They returned to net selling in April, offloading 12.2547 trillion won, but resumed net purchases of 35.2901 trillion won in May and 39.5398 trillion won in June. Net purchases totaled 5.0319 trillion won in July and 5.3918 trillion won in August, while investors recorded net sales of 18.2643 trillion won through the 23rd of September.
Retail purchases, which had expanded alongside the stock market's rise early in the year, temporarily weakened amid the fallout from the war between the United States and Iran before surging again in May and June.
Ninety-two percent of this year's net purchases by retail investors were concentrated in May and June. During the same period, the KOSPI Composite Index rose from above the 7,000 level to as high as the 9,000 level.
The situation changed in July, however, when the KOSPI Composite Index plunged to the 5,500 level. The index did not recover the 7,000 level until September. During the period when retail purchases increased sharply, the National Pension Service's postponement of domestic-stock rebalancing and adjustment of its target allocation also took place.

The National Pension Fund Management Committee raised this year's target allocation to domestic stocks from 14.9% to 20.8% and set the end of June as the deadline for the rebalancing postponement. Although the National Pension Service was required to adjust its holdings if the proportion of domestic stocks fell outside the target range, it temporarily deferred rebalancing early this year.
Rebalancing refers to adjusting a portfolio to bring it back to its target levels when the proportions allocated to assets such as stocks or bonds fall outside predetermined ranges.
In January, the National Pension Fund Management Committee temporarily postponed rebalancing triggered by a deviation from the permitted range for strategic asset allocation (SAA), citing volatility in the domestic stock market. It subsequently decided to apply the adjusted target allocation for domestic stocks starting at the end of June.
As retail investors and the National Pension Service became major buyers in the domestic stock market during this period, foreign investors sold large volumes of their holdings. Foreign net selling totaled 4.18776 trillion won in May and 4.70338 trillion won in June.
At the end of May, when purchases were concentrated in semiconductor stocks, single-stock leveraged and inverse products based on Samsung Electronics and SK hynix were also launched.
As even single-stock leveraged products began trading, volatility in the supply and demand for semiconductor stocks also increased.
As share prices fluctuated sharply, both retail investors who bought single-stock leveraged products and those who purchased individual stocks were affected by the decline in stock prices.

In July, forced liquidations rose to their highest level since records began. According to the Korea Financial Investment Association, the 10 largest domestic brokerages recorded an average of 2,258 accounts and 43.868 billion won per day in forced liquidations related to credit-based trading loans and loans secured by deposited securities.
This was the largest amount on a monthly daily-average basis since related records began in 2022.
In June, forced liquidations also occurred in an average of 1,511 accounts per day, involving 20.4 billion won plus an additional 140 million won. This was the second-largest amount after July.
A forced liquidation occurs when a brokerage forcibly sells shares purchased with credit financing after the collateral value of those shares falls below the required threshold.
A brokerage does not immediately sell the shares. Instead, it requests an additional payment to cover the collateral shortfall in the manner agreed upon by the customer when the credit transaction was established. If the shortfall is not covered within the specified period, a forced liquidation takes place.


[email protected] Han Seung-gon Reporter